FOREX-Weak U.S. data ends the dollar's safe-haven rally

(New throughout; changes dateline, previous LONDON)
By Kate Duguid
NEW YORK, Jan 30 (Reuters) - The U.S. dollar fell on
Thursday on news that the American economy posted its slowest
annual growth in three years in 2019 and personal consumption
weakened dramatically, ending the currency's rally on safe-haven
demand from investors nervous about the economic fallout of the
coronavirus.
The dollar index .DXY had gained 0.65% in the last two
weeks as investor sold off risk assets on coronavirus fears.
Those fears persisted on Thursday morning, boosting the Japanese
yen JPY= and Swiss franc CHF= , but the U.S. economic data
was bleak enough to depress the dollar's safe-haven appeal. The
index was last trading down 0.18% on the day at 97.818.
The American economy missed the Trump administration's 3%
growth target for a second straight year as the slump in
business investment deepened amid damaging trade tensions, the
Commerce Department reported on Thursday. Growth in consumer spending, which accounts for more than
two-thirds of U.S. economic activity, slowed to a 1.8% pace
after rising at a brisk 3.2% rate in the third quarter. Personal
consumption expenditures (PCE) factor into the Federal Reserve's
policymaking, and expectations of an interest rate cut in March
rose from 7.2% yesterday to 17.7% today, according to CME
Group's FedWatch tool.
The odds that interest rates will still be at 150-175 basis
points in July fell from 44.3% yesterday to 38.2% today.
"Fundamentally, if you look at today's GDP report and the
impact that it had on the dollar, you had downward pressure
being exerted because of the sharply lower-than-expected PCE
print. That hurt quite badly, given that is a key input into the
Fed's reaction function," said Karl Schamotta, chief market
strategist at Cambridge Global Payments.
"The overall weakness below the headline number is
indicative of a relatively sharp deceleration in the U.S.
economy," he said, and raises the odds of one more insurance cut
this yet.
The Japanese yen and the Swiss franc gained as the rising
death toll from the coronavirus, which has now spread to more
than 8,100 people globally, surpassing the 2002-2003 SARS
epidemic's total. The yen was last up 0.3% to 108.66 while the Swiss franc was
up 0.49% to 0.968.
The Chinese yuan in the offshore market CNH= , a barometer
of risk sentiment towards Chinese assets as mainland and Hong
Kong markets are shut, tumbled to a one-month low, breaking
through the technically significant 7 yuan per dollar level. It
was last 0.46% weaker to 7.001.