The dollar traded near a three-month high versus the yen on Friday, on track for monthly gains against most rivals as investors waited for US third quarter growth data later in the day. Positive growth numbers would reinforce expectations that the US Federal Reserve is gearing up to hike interest rates. A disappointing result, however, could trigger a fall in the dollar, a scenario that played out in late July when US second-quarter GDP data came in weak.
The dollar eased 0.1 percent to 105.16 yen, holding near Thursday's high of 105.35 yen, which was the greenback's strongest level since late July. Third-quarter GDP growth of around 2 percent that is unlikely to be a big game-changer, said Roy Teo, senior FX strategist for ABN Amro Bank in Singapore.
"Obviously if we see a material downside risk of say 1.5 percent, that's a different ball game," Teo said, adding that such an outcome could cool expectations for the Fed to raise interest rates this year - denting the greenback. An upside surprise could open the way for the dollar to rise towards 107 to 108 yen over the next month, he added. The median forecast in a Reuters poll is for the US advance third-quarter GDP data to show growth of 2.5 percent.
US interest rate futures are implying a more than 78 percent chance of the Fed raising interest rates by December, according to the CME Group's FedWatch tool. A rise in US bond yields has helped bolster the dollar in recent weeks, with the greenback having risen 3.7 percent against the yen so far this month, its biggest monthly gain since May.
The euro edged up 0.1 percent to $1.0909, but was down nearly 3 percent for the month. US Treasury yields climbed to roughly five-month peaks on Thursday, tracking rises in German and British bond yields as investors speculated that the Bank of England and the European Central Bank would both hold off on further easing measures.
Investors trimmed bets that the Bank of England will cut interest rates next week, after data on Thursday showed that Britain's economy grew faster than expected in the three months after the Brexit vote. Sterling last traded at $1.2180, up 0.2 percent on the day, but down from Thursday's one-week high of $1.2273, set immediately after the UK GDP data. "The UK GDP was higher than expected, which boosted yields, and then higher US yields in turn helped lift the dollar," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
The dollar traded around a 7-1/2 year high against the Swedish crown after Sweden's Riksbank said the chances of another interest rate cut had increased and it was ready to expand its quantitative easing programme. The greenback last stood at 9.0572 crowns after climbing to 9.0890 crowns on Thursday, its highest level since March 2009.