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The dollar skyrocketed versus the sterling on Friday, taking back most of this week's big losses after a dismal reading on the UK economy sent traders fleeing from the recently resurgent pound.
The British economy failed to exit recession in the third quarter, officially marking the longest streak of contraction on record. Disappointing GDP figures would possibly force the central bank to extend its quantitative easing measures next month.
The economy contracted 0.4% sequentially in the third quarter, after shrinking 0.6% in the second quarter, a preliminary estimate from the Office for National Statistics showed Friday.
Many have speculated that the Bank of England would raise interest rates and unwind its support measures at the first sign an economic recovery was sustainable. However, with evidence emerging the UK economy is in worse shape than feared, even the downtrodden dollar can expect strength versus the sterling.
The buck zoomed to 1.6300 against the sterling, picking up a whopping 4 cents on the day. The advance brought the dollar back toward a 5-month high near 1.5700 set earlier in October.
The dollar also rose versus the yen, extending its recent uptrend. Earlier this month, the dollar tested a 1995 low of 87.08 yen, but has since rallied on speculation that Japanese officials would intervene to weaken the yen and help the export-driven economy.
The red-hot euro cooled off a bit today. The dollar firmed up slightly against the single currency, hovering near 1.5000 after hitting a yearly low of 1.5059 overnight.
US existing home sales increased by much more than expected in the month of September, according to a report released by the National Association of Realtors on Friday, with first-time home buyers driving sales up to their highest level in over two years.
The report showed that existing home sales jumped 9.4 percent to an annual rate of 5.57 million units in September from a 5.10 million unit rate in August.
Lawrence Yun, NAR chief economist, said. "Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home."
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