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Forex - Dollar Slips as Analysts Warn Pain Ahead for 'Sugar-High' Economy

Published 10/26/2018, 01:04 PM
Updated 10/26/2018, 01:04 PM
© Reuters. The dollar fell against rivals Friday. – The dollar languished near session lows, pressured by falling U.S. bond yields as analysts downplayed the strong third-quarter U.S. economic growth Friday, warning the "sugar-high" economy was set for a bumpy road.

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 0.25% to 96.

Gross domestic product increased at a 3.5% annual rate in the July-September period, the Commerce Department said in its preliminary estimate on Friday, topping economists' estimates for a 3.3% increase.

U.S. bond yields fell following the report, pressuring the dollar, as a deeper look into the report signaled growth could be set for bumpy road ahead as the tailwinds from President Donald Trump's tax cuts wear off.

Disappointing business investment suggested "the boost in capex from tax cuts and deregulation was likely front-loaded and fading quickly," BNP Paribas (PA:BNPP) said. "We continue to expect growth to slow from here as the sugar high in consumer spending turns into a sugar low."

The dollar was also held back by a rebound in both sterling and the euro from session lows.

GBP/USD rose 0.12% $1.2833 from a fresh two-month low of $1.2778. The early-session pressure in the pound was attributed to growing doubts about whether the UK and the European Union can reach a consensus on a Brexit deal, amid divisions within UK Prime Minister Theresa May's Conservatives Party concerning the best approach to restart Brexit talks.

"Politics at home the biggest stumbling block for the pound," ING said. "Until this is resolved, we expect GBP/USD to trade below $1.30," it added.

EUR/USD rose 0.18% to $1.1385 from a session low of $1.1336.

A rout in global markets in the wake of weak quarterly earnings from major U.S. corporates propped up demand for safe-haven yen, keeping a lid on gains in the greenback.

USD/JPY fell 0.35% to Y112.05.

USD/CAD rose just 0.08% to C$1.3083 as rising oil prices firmed up the loonie, weighing on the pairing.

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