By James Ramage
The dollar rose against the yen and pared losses against the
euro on Friday after data showed the U.S. economy grew modestly
over the last three months of 2014, topping forecasts and holding
firm expectations for higher interest rates.
The dollar climbed 0.3% to 119.72 yen, while the euro traded
flat at $1.1197, shedding its earlier gains.
U.S. gross domestic product grew at a 2.2% annual rate for the
fourth quarter of 2014, the Commerce Department said. The number
slipped from the initial estimate of 2.6% reported last month but
beat economists' expectations of 2% growth.
Some of the underlying numbers were positive, said Dean
Popplewell, chief currency analyst at the retail brokerage Oanda
Corp. American consumers boosted spending by 4.2%, likely
benefiting from robust job creation and lower gasoline prices.
Though the number dipped a shade lower than the initial estimate,
household spending remained at its highest level since the last
three months of 2010.
In addition, businesses spent more on software, research and
equipment than initially reported, as investment spending expanded
at a 4.8% rate, up from the previous estimate of 1.9%. Taken in
full, the report keeps alive the possibility for the Federal
Reserve to start raising interest rates around midyear, something
the market has predicted is more likely to happen closer to
September, Mr. Popplewell said.
"I'd say the dollar got a small boost from these underlying
factors," Mr. Popplewell said. "The outlook for future demand to
contribute to growth continues to look positive for 2015."
The Federal Reserve has signaled it would increase rates in the
U.S. when it was confident the data, particularly for jobs and
inflation, showed the economy's recovery stood on firm footing.
Higher interest rates would increase returns on dollar-denominated
assets, making the U.S. currency more alluring to yield-hungry
investors.
Next week, investors expect a heavy calendar of central-bank
meetings and the U.S. jobs report for February to provide direction
for many developed-market currencies that have been trading in
tight ranges over the past two months.
Write to James Ramage at james.ramage@wsj.com