Dollar Falls Against Yen on Softer U.S. GDP Growth

By James Ramage 

The dollar fell against the yen after word that the U.S. economy grew more slowly than expected in the last three months of 2014, tempering market expectations for higher interest rates.

Investors moved into assets they perceived as safe, such as Treasury bonds, gold and the Japanese currency, as they weighed the impact of a possible U.S. slowdown amid sluggish global growth.

The dollar declined to Yen117.52 in New York afternoon trading, down 0.6% from Thursday.

U.S. gross domestic product grew at a 2.6% pace in the fourth quarter, the Commerce Department reported, below economists' average estimate of 3.2%. By comparison, the economy grew 5% in the third quarter and 4.6% in the second quarter after contracting in the first three months of the year.

"The dollar lost general ground after U.S. growth proved slower than expected last quarter, adding strength to market views the Fed might wait longer to boost interest rates," Joe Manimbo, senior market analyst at Western Union, wrote in a research report.

Investors had been betting that improving U.S. data would underpin the Federal Reserve's signals that it might raise interest rates around the middle of 2015, sooner than the Bank of Japan or the European Central Bank would. Higher U.S. interest rates would increase returns on assets denominated in the currency, bringing more investors to the dollar.

But the weaker U.S. growth estimate appeared to undercut the Fed's latest assessment of the economy's recovery, one factor the central bank uses to guide its decision about when to raise interest rates from nearly zero.

Still, the U.S. growth was better than that expected for Japan and the eurozone.

"Growth numbers, even though a slight disappointment, gives the Fed the luxury of patience" regarding higher interest rates, said Alfonso Esparza, senior currency analyst at retail brokerage Oanda. "Other central banks have little room to play with, as growth is sluggish most everywhere else, leading many toward easing policy further."

The euro fell to $1.1282, down 0.3% for the day and hovering near its weakest level in 11 years.

In other trading, the Norwegian krone strengthened against the dollar and the euro after Norges Bank, Norway's central bank, said it would buy more kroner for its sovereign-wealth fund. Doing so balances currency inflows from the oil sector with the government's spending needs.

The dollar lost 1.3% versus the krone, slipping to 7.7280 per dollar. The U.S. currency has gained 3.7% against the krone this year, after rising 23% in 2014. The euro lost 1.5% versus the krone, falling to 8.7264.

Denmark's finance ministry suspended sovereign-bond issuance in an attempt to damp foreign interest in the country's assets and hinder further appreciation of the Danish krone. The Nationalbanken has cut its main interest rate three times in less than two weeks, as the krone has been strengthening against a euro weakened by looser ECB monetary policy.

Charles Duxbury contributed to this article.

Write to James Ramage at [e-mail]

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