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Dollar Holds Declines After U.S. Growth Falls Short of Forecasts

The dollar held declines against most of its major peers after U.S. gross domestic product increased less than forecast in the first quarter, adding to concern the world’s biggest economy is struggling to grow.

The yen climbed against the greenback, extending the dollar's first weekly decline since March, as the Bank of Japan failed to outline additional stimulus efforts. The euro rose after Italian Prime Minister Enrico Letta was sworn in. The report at the end of last week that U.S. first-quarter GDP grew 2.5 percent, compared with analysts’ forecasts for 3 percent, damped bets the Federal Reserve will slow the pace of bond buying under quantitative easing.

“The downside miss added to the miserable tone of recent U.S. data, and took a noticeable toll on U.S. bond yields and the dollar,” analysts at Bank of New Zealand Ltd. led by Auckland-based Mike Jones wrote in a note.

The greenback slid to 97.68 yen as of 8:13 a.m. in Sydney from 98.05 yen in New York on April 26, when it touched 97.56, the lowest level since April 17. It fell 1.5 percent last week against the Japanese currency, the most since June. The dollar declined 0.2 percent against the euro to $1.3055.

Japanese markets are closed today for a holiday.

Yen Shorts

Futures traders decreased bets the yen will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on an increase -- so-called net shorts -- was 79,730 on April 23, compared with net shorts of 93,411 a week earlier.

U.S. growth will slow to a 1.6 percent pace this quarter, a Bloomberg survey forecast. The lagged effect of a jump in the payroll tax at the start of 2013, and $85 billion in automatic budget cuts that began March 1, may take more of a toll.

“Investors have been concentrating a lot on headline numbers, which are confirming that the government sector is being a drag on the economy,” Charles St-Arnaud, a foreign- exchange strategist at Nomura Holdings Inc. in New York, said of the GDP data in a telephone interview. “But we haven’t reached that threshold where it’s extremely weak, which would cause a flight to safer assets.”

Letta, 46, was sworn in yesterday after forging an alliance with Silvio Berlusconi to end a two-month stalemate, becoming Italy’s third-youngest premier since World War II. His Cabinet includes former European Union commissioner Emma Bonino as foreign minister. He also appointed Bank of Italy veteran Fabrizio Saccomanni as finance minister.

Bond Buying

The Fed, which opens a two-day meeting April 30, is buying $85 billion of bonds a month to put downward pressure on borrowing costs. Minutes of the central bank’s March meeting showed policy makers discussed slowing purchases this year.

The dollar increased 2.8 percent over the past three months against nine developed-nation peers tracked by the Bloomberg Correlation Weighted Indexes, the second-best performance. Japan’s currency fell 5.4 percent.

The yen strengthened on April 26 after the Bank of Japan maintained its pledge to double its monetary base in two years and didn’t offer additional measures. BOJ Governor Haruhiko Kuroda said no policy maker judged additional easing was needed now, and that adjustments would be made if necessary.

Kuroda announced the program of increased purchases mainly of government bonds after the BOJ’s previous meeting on April 4.

“They haven’t done anything new here,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “The BOJ just reaffirmed the big bang in terms of the quantity of the monetary base. It seems like there’s a little bit less intensity around reaching the 2 percent inflation target.”

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net; Rocky Swift at rswift5@bloomberg.net

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