Rate forecasts are lifting US Dollar (DailyFx) (30-05-2008)

Current economic conditions seem to be supporting the U.S. dollar, which has been under considerable pressure; stronger than expected economic readings, a sharp drop in crude prices and the possibility of an interest rate increase, have helped the greenback recover.

The leading fundamental source of this dollar strength is the first quarter GDP revision, which has met economists’ expectations, easing fears of an impending recession. The breakdown of the growth report revealed the narrowing of the trade balance to a five-year low - thanks to record exports and curbed imports - marked the largest positive change to the headline reading. However, consumer spending was unchanged at 1.0 percent growth from the year before – the slowest pace of expansion since the 2001 recession. This statistic should act as a warning for traders not to be too optimistic on the outlook for the second half.

The euro, on the other hand has dropped nearly 120 points against the US dollar and 50 points against its British counterpart Thursday as a mixed batch of data found bears a little more receptive to fundamentals.

The British pound recovered somewhat from a steep decline during the European trading session; however the weaker-than-expected house price data undoubtedly put pressure on the currency.

  Source DailyFx