Dollar Falls On Weak Manufacturing Data, Fed Announcement

Dollar Falls On Weak Manufacturing Data, Fed Announcement

Wednesday, January 31, 2007 3:40:13 PM - The dollar dropped on Wednesday, hurt by weak results from a closely-watched regional manufacturing survey and a dovish statement from the Federal Reserve. The greenback came off a multi-week high versus the pound and came further off its peak against the yen.

The dollar began to lose ground against the euro in the mid-morning, spurred lower by a disappointing Chicago PMI report. The decline continued in the afternoon following the release of a dovish Federal Reserve statement. The greenback reached 1.3035, challenging support at its lowest level in a week.

Against the pound, the dollar advanced through two-thirds of Wednesday morning trading, pushing to a nearly 3-week high of 1.9480. The Chicago PMI report helped drive a reversal during the late morning, with losses continuing in the afternoon amid the Fed announcement. The dollar eventually settled at a level near 1.9640.

The dollar also suffered a decline versus the yen. The currency fell in the late morning and continued to exhibit weakness during the afternoon. The greenback slipped to 120.66, coming further off a high it set early this week.

As expected, the U.S. Federal Reserve once again left its key interest rate unchanged at 5.25%. However, the central bank gave a more optimistic description of the economy and eased its rhetoric about inflation.

Earlier in the day, the National Association of Purchasing Management - Chicago revealed that its index of regional manufacturing activity came in at 48.8 in January. This was down from December’s mark of 51.6. Any reading below 50 indicates contraction in the sector, while a level above 50 points to expansion.

In yet another noteworthy report that came out Wednesday, the U.S. Commerce Department revealed that Gross Domestic Product, a key gauge of broad economic performance, climbed at an annual rate of 3.5% in the fourth quarter. This marked improved growth compared to the 2% increase shown during the third quarter. The pace of fourth-quarter expansion was also better than economists had predicted.

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