Dollar gains ground on euro, UK pound on US productivity report
The dollar rose Wednesday against the euro and the British pound after a report showed U.S. workers’ productivity hitting its fastest pace in four years.
Traders were also looking ahead to Thursday’s interest rate decisions by the European Central Bank and Bank of England.
Analysts expect both banks are likely to keep their interest rates unchanged at 4 percent and 5.75 percent, respectively.
The 13-nation euro currency bought $1.4619 in afternoon New York trading, down from the $1.4766 it bought late Tuesday and well off its record high of $1.4966 set on Nov. 23.
The pound fell to $2.0256 in afternoon trading, down from the $2.0574 it bought late Tuesday in New York.
The dollar’s rise came after U.S. worker productivity roared ahead at its fastest pace in four years during the summer, while wage pressures dropped sharply.
The U.S. Labor Department reported Wednesday that productivity, the amount of output per hour of work, was up at an annual rate of 6.3 percent in the third quarter, the best showing since the summer of 2003, and far bigger than had been expected.
The European interest rate meetings come amid renewed fears that the U.S easy quick payday loans. subprime crisis could spread further globally, and debate over whether rate cuts could help stem such concerns.
“Interest rate verdicts are going to continue to dominate the thoughts of currency traders as the last ECB and BoE verdicts of the year are due tomorrow,” said James Hughes, an analyst with CMC Markets in London. “Each item of data holding inflationary messages can expect to remain under scrutiny.”
In addition to Britain and the euro zone, the U.S. Federal Reserve meets next week to discuss interest rates, with many convinced it may lower its rate by half a percent to 3.5 percent. The mortgage problems in the U.S. that have tripped up borrowers and caused a credit crisis among banks are fueling fears about the health of the U.S. economy.
Concerns over the huge U.S. trade deficit, which leaves more dollars in the hands of foreigners, have also weighed on the dollar.
Lower interest rates can jump-start an economy, but they can also weaken a currency as investors transfer funds to countries where they can earn higher returns.
In other New York trading, the dollar rose to 110.55 Japanese yen from 110.47 yen late Tuesday in New York.