The dollar rose against the euro on Friday, extending a week-long rally after a report showed the U.S. economy grew a touch faster than expected during the fourth quarter. Gross domestic product, a broad measure of the health of the U.S. economy, rose at a 4.1 percent annual rate in the quarter, a tad higher than the 4 percent rise first reported but well below a blistering 8.2 percent in the third quarter. "The GDP result was a good number although it's more psychological than real. You do have a small upward revision ... because of business spending which was better than previously reported," said Nick Bennenbroek, foreign exchange strategist at Brown Brothers Harriman & Co.
Earlier in the global trading day the dollar rose to fresh one-month highs versus the euro, extending its rally ahead of talks between German Chancellor Gerhard Schroeder and U.S. President George W. Bush at around 11:00 a.m. EST (1600 GMT). A German government source said Schroeder will make euro strength against the dollar a main theme in the meeting. French and German politicians are concerned about the euro's strength and Schroeder has called for a cut in European interest rates. Early Friday morning in New York, the euro traded at around $1.2414 after having fallen to $1.2374 against the dollar in early global trade. The euro has lost more than five cents from last week's record high near $1.2930. "If you combine that (the GDP figure) with the fact that there have been articles about the possibility of an ECB rate cut, that would tend to add to the dollar's strength. Now the dollar is a little choppy and perhaps just below $1.2380 which tested earlier, that could be an important level to hold," Bennenbroek said. While the ECB dislikes political pressure, speculation is growing it might consider lowering rates if there is evidence euro strength is putting downward pressure on inflation. A first estimate of euro zone inflation data showed inflation slid to an annual rate of 1.6 percent in February, below the ECB's target ceiling of 2.0 percent.
"If we have data coming below target for two to three months then the ECB will genuinely consider cutting rates, but not because of political pressure. The ECB has been saying the current monetary policy is appropriate," said Simon Derrick, chief currency strategist at Bank of New York. The dollar traded down 0.5 percent at 109.11 yen , off this week's three- month high of 109.83 yen. The dollar hit three-year lows near 105.15 yen earlier this month. Japan's Ministry of Finance said Japan sold 3.3420 trillion yen ($30.47 billion) in currency intervention in February to stem the yen's rise against the dollar. A senior MOF official said most of that was in the first half of the month. The figure compares with a record seven trillion yen in January. The National Association of Purchasing Management-New York's business conditions index rose to 267.2 in February from 257.3 in January, its highest since September 2001, when the city, already in recession, was hit by the Sept. 11 attacks.//