Friday July 31, 2009 - 11:28:19 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar slips on higher risk demand, US GDP awaited
Fri Jul 31, 2009 7:22am EDT
* Dollar pressured ahead of U.S Q2 GDP data
* Data eyed for signs U.S. economic contraction slowing
* EZ Q2 jobless better-than-expected; CPI rate lower
By Nick Vinocur
LONDON, July 31 (Reuters) - The dollar slipped broadly on Friday, pressured by a rise in global equity markets as investors eyed second quarter U.S. growth figures for signs the world's largest economy may be on the path to recovery.
The euro showed limited initial reaction to economic data which showed euro zone unemployment rising to a 10-year high in June, while other figures showed July inflation moved much further into negative territory than expected. ECON
Analysts said investors brushed off the figures and were braced for the U.S. data due at 1230 GMT, which is expected to show the economy shrank by 1.5 percent in the second quarter, slower than the 5.5 percent contraction in the previous quarter.
Cautious optimism ahead of the data, coupled with upbeat corporate earnings, helped the MSCI world equity index .MIWD00000PUS hit its highest in more than nine months, boosting risk appetite and weakening the dollar.
"The data is expected to show a material improvement in economic activity but this would still leave (the economy) in contraction territory, reinforcing the need for record monetary stimulus," said Lena Komileva, G7 market economist at Tullett Prebon in London.
"Ironically, a stronger-than-expected figure could trigger dollar weakness as it would bode well for risk sentiment," she added.
By 1044 GMT, the dollar index, which tracks its movements against a basket of currencies, fell 0.3 percent to 79.037 .DXY, as S&P futures SPv1 rose 0.3 percent, indicating U.S. stock markets would open higher.
Earlier in the week, the index stumbled to 78.315, its lowest level of the year, and was on track to post a 1.4 percent fall on the month.
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, the euro and sterling.
The euro EUR= rose 0.4 percent higher at $1.4123, supported by the buoyant tone in broader equity markets. European shares edged up 0.1 percent, recovering from earlier losses.
The euro brushed off data showing euro zone unemployment rose to 9.4 percent in June, less than expected, while July consumer prices fell 0.6 percent on the year in July, moving further into negative territory than forecast. [ID:nLV447673]
"The larger-than-expected drop in inflation and the unrelenting rise in unemployment should serve as a stark reminder to the ECB that medium-term inflation risks in the euro zone are tilted to the downside -- as opposed to broadly balanced," said Martin Van Vliet, economist at ING.
Sterling GBP= and the Australian dollar, often considered to be higher-risk than the dollar, each rose around 0.3 percent against the U.S. currency, with the Australian dollar AUD=D4 inching closer to a 10-month high of $0.8339 hit earlier in the week.
Despite the dollar's broad slide, it was little changed against the yen at 95.56 yen JPY=, as higher risk demand also put the Japanese currency on the back foot.
The Swedish crown jumped to an eight-month high versus the euro of 10.3415 crowns EURSEK= after data showed Sweden's economy shrank at an annual pace of 6.2 percent in the second quarter, less than forecasts for a 6.6 percent drop. (Editing by Ruth Pitchford)
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