The dollar rose to a 10-week high against the yen and reduced losses versus the euro on Thursday, after US data showed that growth in the world's largest economy was stronger than expected in the fourth quarter. Prior to the data, the dollar index, a measure of the greenback's value against six major currencies, had fallen to a three-week trough.
According to the Commerce Department report, US gross domestic product increased at a 2.6 percent annualized rate in the fourth quarter after expanding at a 3.4 percent pace in the July-September period. Economists had been expecting growth of just 2.3 percent. The economy overall grew 2.9 percent in 2018, the best performance since 2015, and better than the 2.2 percent in 2017.
"For now, this points to upwards risks for the dollar, as market pricing for further rate hikes is very cautious at less than one interest rate hike in 2019," said Bart Hordijk, market analyst at Monex Europe in Amsterdam. In midday trading, the dollar index was up slightly at 96.201 recovering from a three-week low. Traders said some of its weakness was caused by month-end selling after a strong month for risky assets. Against the yen, the dollar rose 0.4 percent to 111.38 yen, turning positive after the US GDP data, and hitting 111.43 yen, the highest in roughly 10 weeks.
Eric Viloria, FX strategist at Credit Agricole in New York, said the GDP report does not change the trajectory of Federal Reserve policy. "Our economists have been forecasting one more US (interest rate) hike this year, so there's no real change to that. The GDP data is not a really surprise to the Fed," he added. The euro, meanwhile, was up 0.1 percent at $1.1379, paring gains that took it to a three-week high.
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