Euro Gains With Dollar Subdued
The euro rose modestly and looked poised to finish the week above $1.36. The common currency traded at $1.3621 at 7:25 GMT following another round of disappointing economic data from the U.S., which weighed on the dollar.
U.S. consumer spending data out on Thursday came in below expectations, adding to growing speculation that the U.S. Federal Reserve wouldn’t tighten its monetary policies any time soon. The Commerce Department said that U.S. consumer spending rose 0.2 percent in May, but when adjusted for inflation, the figure showed a decrease for the second month in a row.
The data prompted many analysts to revise their expectations for U.S. GDP in the second quarter as consumer spending makes up about two thirds of the nation’s economic activity.
Related Link: Euro Climbs On U.S. GDP Surprise
The report came shortly the nation’s first quarter GDP was revised downward to reveal a shocking 2.9 percent contraction. The sharp drop was attributed to several “one-off” events including an unusually severe winter, but many don’t see the U.S. having enough momentum to make a strong comeback in the second quarter.
However, Businessweek reported that Barclays sees the dollar gaining momentum over the next year.
The Fed is expected to finish tapering its quantitative easing program in October, and Barclays believes that rising inflation will prompt the bank to consider a rate increase sooner than markets expect, as soon as June 2015. The bank said that the divergence in monetary policy between the Fed and the European Central Bank will likely drive the euro lower and add some buoyancy to the dollar.
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