CURRENCIES: Dollar Adds To Weekly, Monthly Loss After GDP Data

The U.S. dollar declined more than 1% on Friday after the government said the world's largest economy shrank less than economists expected, while still indicating worrying trends in consumer spending.

Gross domestic product contracted 1% in the second quarter, better than the 1.2% reduction predicted by economists surveyed by MarketWatch. Still, traders combed through revisions to past data and components of the report and kept an eye on equities since the greenback has been so closely tried to indications of investors' risk appetite.

The dollar index (DXY), which tracks the greenback against a trade-weighted basket of six major currencies, fell to 78.329 from 79.244 in late North American trading Thursday.

The euro rose about 1.3% to $1.4257 from $1.4064 late Thursday.

The dollar and to a larger extent, the Japanese yen, have tended to strengthen on signs that investors' tolerance for risk is on the decline, typically rising as equities fall. The Standard & Poor's 500 Index (SPX) held onto small gains in recent trading.

One dollar fell to buy 94.80 yen, from 95.46 yen late Thursday.

For the week, the dollar index has slipped from 78.921, and fallen 2.2% from 80.133 at the end of June. The decline added to 3.6% loss in 2009.

The euro gained slightly versus the dollar since last Friday and is up from $1.403 this month.

The yen did a little better this week, and has moved from 96.49 yen a month ago.

Briefly supporting the dollar, first-quarter GDP was revised to reflect a more severe contraction, and second-quarter consumer spending dropped 1.3%, more than double what some analysts expected.

"The GDP report was filled with underlying weakness," said Kathy Lien, director of currency research at Global Forex Trading. "Without the consumer participating, the U.S. economy will have a difficult time rising out of recession."

The dollar fell further after the Chicago purchasing managers index rose to 43.4% in July from 39.9% in June, according to a survey of corporate purchasing managers released Friday. While still indicating overall business contraction, the Chicago PMI is considered a leading indicator to the national Institute for Supply Management manufacturers' survey to be released on Monday.

"The overall string of constructive economic data will likely carry into at least the early part of next week, said Marc Chandler, head of global currency strategy at Brown Brothers Harriman. "The greenback is near the lows of the day."

Overseas data

The euro extended gains despite a sharper-than-expected drop in euro-zone annual consumer prices in July. The statistics agency Eurostat said annual CPI fell 0.6% in July. The CPI fell 0.1% in June, the first annual drop since the euro was launched in 1999.

Eurostat also reported that unemployment in the single-currency region rose to 9.4% in June. That's the highest level in a decade, but was below market expectations for a rise to 9.7%.

European stocks held small gains, and overnight, markets across Asia were broadly higher.

In Japan, the June jobless rate rose to the highest level in six years, while consumer prices fell at a record level for the month, government data showed Friday. Investors shrugged off the news, sending the Nikkei 225 Average to a 10-month closing high.