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Dollar Strengthens As Investors Vacate Equities

Dollar Strengthens As Investors Vacate Equities

The dollar has strengthened against its major European rivals on Friday. The lower than expected Chinese GDP report for the first quarter rekindled growth concerns. Risk appetite among investors is on the decline today, as evidenced by sharp declines in stock markets in Europe and the United States. The safe haven status of the dollar has been the reason for its strength today.

The Chinese economy expanded at the weakest pace in nearly three years in the first quarter of 2012, with growth decelerating more than expected from the fourth quarter of 2011, mounting pressure on the government for continued policy action to support economic activity.

The gross domestic product expanded 8.1 percent year-on-year in the first three months of 2012, slower than the fourth quarter's 8.9 percent increase, the National Bureau of Statistics said Friday. Economists expected a slowdown in growth to 8.4 percent.

Concerns over the situation in Spain also weighed on investors Friday. Spanish banks stepped up their borrowings from the European Central Bank in March after it announced the second long-term refinancing operation in a bid to ease credit crunch. Bank of Spain data showed Friday that Spanish banks' net borrowing from ECB climbed to EUR 227.6 billion in March from EUR 152.4 billion in February.

The dollar rebounded from a week and a half low of $1.3212 against the Euro Friday and climbed back to around $1.3070.

Germany's EU harmonized inflation slowed in March as initially estimated, final data from the Federal Statistical Office showed Friday. The harmonized index of consumer prices for Germany, which is calculated for European purposes, rose 2.3 percent annually, which was slightly slower than the 2.5 percent growth seen in February.

The greenback also rebounded from nearly a 2-week low of $1.5984 against the pound sterling Friday, back to around $1.5840.

U.K. factory gate inflation declined to the lowest level in more than two years in March. Nonetheless, higher oil prices lower the prospects of a further slowdown in the coming months. Output price inflation slowed to 3.6 percent annually in March, the smallest since January 2010, from 4.1 percent in February, a report released by the Office for National Statistics showed Friday. The rate stayed slightly above the 3.5 percent rise forecast by economists.

The buck has remained basically flat versus the Japanese Yen. The dollar has been hovering around the Y81 level since April 11.

U.S. Consumer prices continued to rise in March, according to figures released Friday by the Labor Department, although the pace of growth slowed compared to the previous month. The Consumer Price Index increased by 0.3 percent in March compared to the 0.4 percent increase posted in February. The increase was in line with the expectations of most economists.

Consumer sentiment in the U.S. saw an unexpected deterioration in the month of April, according to a report released by Reuters and the University of Michigan on Friday, with the consumer sentiment index pulling back off a thirteen-month high. The report showed that the preliminary reading on consumer sentiment in the month of April fell to 75.7 compared to March's final reading of 76.2. Economists had expected the index to come in unchanged compared to the previous month.

by RTT Staff Writer

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