Dollar slides to 2009 low

A government report showed that U.S. GDP decreased at a slower-than-expected pace in the second quarter, increasing investor risk appetite.

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NEW YORK (Reuters) -- The U.S. dollar fell to its lowest for the year Friday, as higher oil prices, steady stock markets, and data showing an unexpectedly small contraction in the U.S. economy boosted risk appetite and curbed safe-haven demand for the greenback.

Month-end flows amid investors rebalancing their portfolios also weighed on the dollar and exacerbated currency movements, traders said.

Government data Friday showed U.S. gross domestic product shrank at a slower-than-expected pace in the second quarter, although the report also showed a drop in consumer spending.

"I don't think the GDP report is all that bad. Looking at the data, the liquidation in the first half of the year is quite positive for second-half growth," said Adam Boyton, senior currency strategist, at Deutsche Bank in New York.

That has contributed to the overall recovery theme and boosted risk appetite, he added.

Further adding to the positive risk tone was the surge in commodity prices, with oil prices rising nearly 4.0%.

In late afternoon trading in New York, the ICE Futures U.S. dollar index, which tracks its movements against a basket of six other major currencies, fell 1.3% to 78.291, after falling as low as 78.220, a fresh 2009 low.

The index closed just above 78.300, the lowest since September 2008

At current prices, the dollar index was on track to post a 2.3% fall for July.

The euro rose 1.3% on the day to $1.4253, its biggest one-day gain in more than a month. The euro zone's single currency was up 1.6% for July.

The dollar fell 0.9% against the yen to ¥94.71. The euro rose 0.5% versus the Japanese currency to ¥135.03.

Sterling jumped to a one-month high against versus the dollar at $1.6733

Data showing business activity in the U.S. Midwest in July increased more than expected also boosted demand for riskier assets, analysts said.

The National Association of Purchasing Management-Chicago business barometer rose to 43.4 from 39.9 in June. Economists polled by Reuters had expected it at 43.0.

"Overall, sentiment for the buck is negative," said Jacob Oubina, currency strategist at in Bedminster, New Jersey. "The Chicago PMI index actually came in better than expected and the details were pretty positive across the board."

Solid global corporate earnings have triggered a rally in higher-yielding assets this month as risk appetite has picked up, which has stung the dollar and benefited currencies including the Australian dollar.

"On balance, a 1.0% decline in GDP is still much, much improved from the previous quarters. That's consistent with the stabilization we've seen in the economy," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.

"It's the last trading day of the month, and we're still looking at thin summertime conditions. Expect choppy conditions to persist." To top of page

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