The Dollar Index traded between the 83.30-83.80 range today, finishing the day right where it started at approximately 83.50. While annualized GDP growth came in at 3.1 percent--well below the 3.5 percent consensus estimation--the disappointment was partially offset by other data such as a better-than-expected 4.6 percent rise in consumption. The Employment Cost Index and GDP Price Deflator showed that wage increases were not keeping pace with inflation; the 0.7 percent increase wages was the smallest in six years, significantly below the 2.0 percent rise in the GDP Price deflator. Over the year, GDP grew by 4.4 percent, the economy's best showing since 1999.
At the World Economic Forum, Bundesbank President Axel Weber explained that the dollar foreign-exchange rate did not deserve to be under the spotlight as much as effective and bilateral exchange rates, but his criticism of the financial markets had little impact on the dollar.
The euro came in at 1.3047 against the dollar, the pound at 1.8883 to the dollar, and the dollar was quoted at 103.34 versus the yen at 21:10 GMT.
US stocks declined today on the disappointing GDP growth news. The Dow Jones, the Nasdaq, and the Standard and Poor's 500 index fell 0.38 percent, 0.55 percent, and 0.27 percent respectively.
Proctor and Gamble's proposed takeover of Gillette made headlines but failed to boost the main indexes. Procter and Gamble stock dropped 2.1 percent, while Gillette surged almost 13 percent. Merck fell 10 percent after an appeals court invalidated a patent on one of its new drugs.
Electronic manufacturing services fell almost 3 percent as Sanmina-SCI tumbled 14 percent on disappointing first quarter results. Halliburton also fell 6.1 percent on lower-than-expected profits. On a week packed with merger and acquisition activity, stocks gained an average of 0.6 percent. The GDP release reduced the chance of large interest rate hikes and resulted in the highest rise in US ten-year treasury notes in seven weeks. Though the GDP Price Deflator came in slightly lower than feared, the pace of inflation is nevertheless expected to quicken in the next few months. Traders are holding their breaths as they await the political state of affairs that will follow the Iraqi election.