By James Ramage
The dollar fell against the yen Friday after word that the U.S.
economy grew more slowly than expected in the last three months of
2014, tempering market expectations for higher interest rates.
Investors moved into assets they perceived as safe, such as
Treasury bonds, gold and the Japanese currency, as they weighed the
impact of a possible U.S. slowdown amid sluggish global growth.
The dollar fell to 117.63 yen in afternoon trade, down 0.6% for
the day.
U.S. gross domestic product grew 2.6% in the fourth quarter, the
Commerce Department said Friday. The pace of growth was below
economists' average estimate of 3.2%. By comparison, the economy
grew 5% in the third quarter and 4.6% in the second quarter after
contracting in the first three months of the year.
"The dollar lost general ground after U.S. growth proved slower
than expected last quarter, adding strength to market views the Fed
might wait longer to boost interest rates," Joe Manimbo, senior
market analyst at Western Union, wrote in a research report.
Investors had been betting that improving U.S. data would
underpin the Fed's signals that it might raise interest rates
around the middle of 2015, sooner that the Bank of Japan or the
European Central Bank would. Higher U.S. interest rates would
increase returns on assets denominated in the currency, bringing
more investors to the dollar.
But the weaker U.S. growth estimate appeared to undercut the
Federal Reserve's latest assessment of the economy's recovery, one
factor the central bank uses to guide its decision about when to
raise interest rates from near zero.
Still, the U.S. growth was better than that expected for Japan
and the eurozone.
"Growth numbers, even though a slight disappointment, gives the
Fed the luxury of patience" regarding higher interest rates, said
Alfonso Esparza, senior currency analyst at the retail brokerage
Oanda. "Other central banks have little room to play with, as
growth is sluggish most everywhere else, leading many toward easing
policy further."
The euro fell to $1.1295, down 0.2% for the day, and hovering
near its weakest level in 11 years.
In other trade, the Norwegian krone strengthened against the
dollar and the euro after the country's central bank said it will
buy more of the currency for Norway's sovereign wealth fund. Doing
so balances currency inflows from the oil sector with the
government's spending needs.
The dollar lost 1.3% versus the krone on Friday, slipping to
7.7243. The U.S. currency has gained 3.7% against the krone this
year, after rising 23% in 2014. The euro lost 1.6% versus the
krone, falling to 8.7259.
Denmark's finance ministry suspended sovereign-bond issuance in
an attempt to damp foreign interest in the country's assets and
hinder further appreciation of the Danish krone. The Nationalbanken
has cut its main interest rate three times in less than two weeks,
as the krone has been strengthening against a euro weakened by
looser European Central Bank monetary policy.
--Charles Duxbury contributed to this article.
Write to James Ramage at james.ramage@wsj.com