Dollar Falls as GDP Trails Forecast

The dollar fell the most against the euro in almost three weeks as reports showed the U.S. economy grew less than forecast in the second quarter and initial jobless claims rose last week to a five-year high.

The euro advanced earlier against the dollar as European inflation accelerated to the fastest pace in 16 years. The pound dropped against the euro after reports showed British consumer confidence declined this month to a record low and house prices fell the most in almost two decades.

The dollar dropped 0.4 percent to $1.5642 per euro at 9:49 a.m. in New York, from $1.5576 yesterday. The U.S. currency declined to the record low of $1.6038 on July 15. The euro increased 0.2 percent to 168.71 yen, from 168.41. The U.S. currency dropped 0.3 percent to 107.83 yen, from 108.13.

Today's decline pared the greenback's gain versus the euro this month to 0.7 percent. The dollar has advanced 1.6 percent against the yen, while the euro has gained 0.9 percent versus Japan's currency.

Sterling declined 0.2 pence to 78.76 pence per euro today after the London-based market-research firm GfK NOP said its index of consumer confidence fell to the lowest since the data began in 1974. The average value of a home dropped 8.1 percent from a year earlier, the biggest decline since at least 1991, said Nationwide Building Society, Britain's fourth-biggest mortgage lender.

U.S. gross domestic product increased at an annual rate of 1.9 percent in the second quarter after revised 0.9 percent growth in the first three months of the year, the Commerce Department reported today.

Initial jobless claims rose to 448,000 in the week ended July 26, from a revised 404,000 the prior week, the Labor Department said. The total number of initial filings last week was the highest since April 2003.

The U.S. currency touched a one-month high against the euro yesterday after a private report showed companies unexpectedly added jobs this month.

A measure of U.S. business activity rose in June, led by a gain in orders. The National Association of Purchasing Management-Chicago said its business index increased to 50.8 this month from 49.6 in June. Fifty is the dividing line between growth and contraction.

The euro strengthened versus the dollar as the European Union statistics office reported that the euro zone's inflation rate rose to 4.1 percent this month, the biggest increase since April 1992. The European Central Bank raised its main refinancing rate to 4.25 percent on July 3, the highest level since 2001.

Dollar Falls as GDP Trails Forecast, Bloomberg
7/31/2008 6:59:54 AM