Business

Published: Saturday October 31, 2009 MYT 8:42:00 AM
Updated: Saturday October 31, 2009 MYT 11:24:50 AM

Safe-haven dollar gains as consumer spending weak


NEW YORK (AP): The dollar, after starting the week at a 14-month low against the euro, gained on most currencies Friday as concern about weak U.S. consumer spending offset jubilation over growth in the world's largest economy.

The 16-nation euro dropped to $1.4730 in late New York trading from $1.4845 late Thursday. The British pound fell to $1.6447 from $1.6548, but the dollar fell to 89.98 Japanese yen from 91.49 yen.

On Monday, the euro touched a 14-month high of $1.5061 against the dollar.

On Friday, the Commerce Department said consumer spending dropped 0.5 percent last month, while personal incomes, which power future spending, were unchanged.

It was the biggest drop in spending in nine months and followed a 1.4 percent jump in August that was due to the government's "Cash for Clunkers" autos sales incentive program.

Consumer spending powers about 70 percent of the U.S. economy. So even though the government said Thursday that U.S. economic activity grew at a 3.5 percent pace in the third quarter, the strongest rate of growth in two years and the first increase in more than a year, worries remain for future growth amid rising unemployment.

Investors tend to sell the low-yielding dollar in favor of riskier, higher-yielding currencies and stocks when strong economic reports, corporate earnings or other developments imply the economy is improving. Data or events that signal economic weakness tend to benefit the buck and the safe-haven U.S. government debt it can buy.

Such dollar-denominated investments also have low yields because the Federal Reserve is holding interest rates at a rock-bottom range near zero. Other countries, such as Australia and Norway, have already starting hiking rates. Expectations for the Fed to raise rates vary, but most economists see next summer as the most likely time.

"Interest rates will remain at near-zero for the foreseeable future," despite the third-quarter growth in the economy, said Capital Economics analysts.

The Federal Reserve's interest-rate setters meet next week, with an announcement expected Wednesday.

In other late New York trading Friday, the dollar rose to 1.0252 Swiss francs from 1.0181 francs late Thursday, and gained to 1.0797 Canadian dollars from 1.0662.

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