Government says U.S. economy fell 6.1% in the first quarter. Investors eye Federal Reserve's policy statement.
The dollar was mixed against rival currencies Wednesday after the U.S. government said the nation's economy suffered a sharper-than-expected drop in the first quarter.
The dollar was down 0.9% against the euro at $1.3265. It also slid 0.9% versus the pound to $1.4775. Against the yen, the U.S. currency recovered from earlier losses to trade 0.4% higher at ¥96.94.
Gross domestic product, the broadest measure of economic activity, fell at an annual rate of 6.1% in the first quarter of 2009 after a 6.3% drop in the last three months of 2008. Economists surveyed by Briefing.com had forecast a 4.7% contraction.
However, the report also showed that purchases by individuals rose 2.2%, the first time personal spending rose since the second quarter of 2008.
"If spending is picking up, the stabilization story can still play out as long as we do not have another big shock in the financial sector," said Kathy Lien, director of currency research at Global Forex Trading.
That cautious sense of optimism about the economy helped boost demand for higher-yielding currencies, such as the euro and the pound. It also improved the sentiment on Wall Street, where stock prices opened sharply higher.
However, investors are also focused on the Federal Reserve, which is set to release its policy statement later this afternoon.
Most economists expect the central bank to leave interest rates unchanged at historically low levels near zero. But the currency market will pay close attention to the policymakers' assessment of the economy.
"If the Fed cuts their growth forecasts or expands their asset purchase programs, it would be dollar negative," Lien said. "If they leave their forecasts unchanged, which is what we expect, it could actually accelerate the gains in the U.S. dollar."
