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The dollar finished a strong week in characteristic fashion Friday, surging to another six month high against the slumping euro after the release of better-than-expected preliminary fourth quarter GDP figures.
Analysts suggest that dollar has entered a sweet spot, rising on encouraging economic news from the US while enjoying its status as the world's safe haven currency when the global economic recovery is thrown in doubt.
U.S. economic activity expanded for the second consecutive quarter in the final three months of 2009, with the pace of gross domestic product growth far exceeding economist estimates.
A preliminary report released by the Commerce Department showed that gross domestic product increased at an annual rate of 5.7 percent in the fourth quarter compared to the 2.2 percent growth seen in the third quarter.
Meanwhile, activity in the Chicago-area manufacturing sector unexpectedly expanded at a faster pace in the month of January, with employment jumping to its highest level in nearly five years.
Rising manufacturing activity has fueled speculation that the economy is on the road to a sustainable recovery from the most severe recession in decades.
The Institute for Supply Management - Chicago's index of regional manufacturing activity jumped to 61.5 in January from 58.7 in December, with a reading above 50 indicting growth in the sector.
The dollar hit 1.3862 versus the euro, its highest level since last July. With its recent surge, the dollar has moved well away from November's 15-month low near 1.5100.
The euro has been crippled by sluggish EU growth and concerns about mounting debt in Greece and other member states.
One day after ratings agency S&P said the British banks were no longer among most stable in the world, the dollar rallied to a 3-week high of 1.5994 against the sterling.
The buck was steady versus the yen, holding above Y90.50. Bank of Japan Governor Masaaki Shirakawa said on Friday that the central bank is ready to take swift, bold action if financial markets become unstable again.
Shirakawa's comments come after official data showed that consumer prices fell for the tenth straight month. The central bank has already pledged to tackle deflation, vowing that it "would not tolerate" consumer prices at, or below, zero.
A modest increase in the price of oil limited the upside for the dollar against the petro-linked loonie. With traders also weighing data showing that Canadian GDP grew a bit more than expected in November, the dollar held near yesterday's 6-week high of C$1.0694.
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