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The dollar surged to the upside versus the sterling but briefly touched a new yearly low against the euro Friday morning after UK gross domestic product data showed that the economy contracted badly in the third quarter.
Economists were expecting the UK to begin expanding following the worst recession in decades. The sterling had been moving higher of late following a dreadful summer, but is now on the defensive across the board amid speculation that the Bank of England will be unable to unwind its asset purchase programme or raise interest rates any time soon.
The dollar jumped 2 cents against the sterling, improving to 1.6370 from a 5-week low of 1.6693. With the advance, the dollar moved back toward a 5-month high near 1.5700.
The UK economy contracted 0.4% sequentially in the third quarter, after shrinking 0.6% in the second quarter, the Office for National Statistics said Friday. Economists were expecting the economy to exit recession in the third quarter by expanding 0.2%.
The buck also gained on the yen, rising to a monthly high of 91.91.
On the flip side, the dollar continued its downward spiral versus the euro, dropping to a new 14-month low of 1.5059. Traders have made a gradual retreat from the dollar since March, when equities turned higher and green shoots began to appear on the economic landscape.
On the economic front in the US, traders might focus on the existing home sales report for September, slated for release at 10.00 a.m. ET by the National Association of Realtors. Economists expect an uptick in the reading to 5.35 million as homebuyers might have made purchases to take advantage of government tax credit.
Traders may also focus on a speech from Federal Reserve Chairman Ben Bernanke.
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