* Dollar index drops to one-month lows after surprisingly
* U.S. economy contracted at an annualised rate of 2.9 pct
* Some see USD setback as temporary, in light of more recent
By Lisa Twaronite and Ian Chua
TOKYO/SYDNEY, June 26 The dollar languished near
one-month lows against a basket of major currencies on Thursday,
following a surprise downward revision to U.S. first quarter
The dollar index fell as far as 80.091 on Wednesday,
a low not seen since May 22, as investors reacted negatively to
data that showed the U.S. gross domestic product contracted at a
2.9 percent annualised pace, the sharpest decline in five years.
The index, which tracks the greenback against a basket of
rivals, recovered to 80.175 in Asian trade but was still down
about 0.1 percent on the day.
While economists said other data showed the economy
rebounding in this quarter and the weak first quarter GDP
showing was mainly due to one-off factors, it still gave no
reason to expect the U.S. Federal Reserve would increase
interest rates anytime soon.
"It was very disappointing, and in the current situation we
have very low vol, heading into month-end, and half-year end as
well," said Sue Trinh, senior currency strategist at RBC Capital
Markets in Hong Kong. "So, the ducks are all lined up (for) U.S.
The benchmark U.S. 10-year Treasury yield
skidded to a three-week low of 2.529 percent in the wake of the
data. It recovered to 2.555 percent in Asian trade on Thursday,
but was still below Wednesday's U.S. close of 2.559 percent.
The euro bounced to a three-week high of $1.3652 on
Wednesday and was slightly up on the day at $1.3633, while the
Australian dollar popped back above 94 U.S. cents from
a one-week low of $0.9354, and was last at $0.9401.
Sterling edged up to $1.6986, moving away from the
previous session's one-week low of $1.6952.
While the GDP was shocking, analysts at BNP Paribas said it
was more of a temporary setback for the dollar than a sea
"We would not want to over-emphasize the importance of this
backward-looking report, especially as the Fed has already
highlighted it sees Q1 growth as distorted by weather and with
more current measures of economic activity broadly pointing to a
rebound in activity in Q2," they wrote in a note to clients.
"Although there are clear headwinds for the USD at the
moment...the fact that market positioning is overall flat on the
USD suggests risks of a large dollar sell-off are quite
Against its Japanese counterpart, the dollar slipped about
0.1 percent to buy 101.74 yen. The euro also inched lower
to 138.70 yen.
Still, yen gains were likely to be limited by expectations
that the Bank of Japan might have to ease policy again by
December, according to a Reuters poll published on Wednesday.
Investors awaited a key measure of U.S. consumer inflation,
due to be released later on Thursday. The price index for
personal consumption expenditures, watched by the Federal
Reserve, is expected to have reached its highest since late 2012
In Europe, the Bank of England is expected to announce tough
measures to rein in fast-rising British house prices, which
Governor Mark Carney has warned are the biggest domestic threat
to financial stability.
The EU summit also starts on Thursday with a working dinner
on the EU's long-term policy agenda before the contentious
decision on the Commission presidency on Friday.
(Editing by Shri Navaratnam and Simon Cameron-Moore)