LONDON, May 25: The dollar drifted lower against the euro here on Thursday following growth data from the United States that analysts said could prompt the Federal Reserve to ease the pace of its interest rate hikes.

The single European currency in late-day trade was at $1.2778 against $1.2755 late Wednesday in New York. The dollar was meanwhile trading at 111.92 yen after 112.84 on Wednesday.

The Commerce Department revised its estimate of first quarter US annualised growth to 5.3 per cent from 4.8 per cent, its best showing since the third quarter of 2000.

But private economists had been expecting a pace of 5.8 per cent.

CALYON chief economist Michael Carey said the first quarter figure could be enough to convince Federal Reserve policymakers to maintain current US interest rate levels when they convene in June.

Holding the benchmark Fed Funds rate — which has been on the rise since June 2004 — at 5.0 per cent could make the dollar less attractive to investors, thereby weakening the currency.

“There is no question that the market is looking for a reason to sell dollars again, which left little doubt over the market’s reaction to a weaker-than-expected US GDP report,” said Michael Woolfolk at Bank of America.

The GDP report also revealed that the PCE core index, one of the Fed’s favoured measures of inflation, was left unchanged at 2.0 per cent in the January to March period, down from 2.4 percent in the last three months of 2005.

“This should help assuage ongoing concerns over rising inflationary risks,” Woolfolk said, adding that US rate setters appeared to be approaching a neutral monetary policy position and were preparing to pause.

In another report, existing US home sales in April were shown to have been lacklustre, adding to the selling pressure on the dollar.

Existing home sales fell to 6.76 million units following two strong months as the cost of higher mortgage rates started to bite.

“The April decline in existing home sales supports our view that the housing sector will experience a global slowdown in the second half of the year,” said CALYON’s Carey.—AFP