NEW YORK: The dollar reached two-month peaks on Friday, as better-than-expected US growth data did not alter the view the Federal Reserve would soon lower rates for the first time in a decade.
The dollar's rise was also helped by widening yield differentials between US and German debt. Spreads were holding at two-month highs at 250.5 basis points.
Investors were disappointed by a lack of policy action from the European Central Bank at a meeting on Thursday. Their attention will now shift to a Federal Reserve meeting next week, where policymakers are expected to cut interest rates by 25 basis points to 2.00%-2.25%.
While US gross domestic product slowed less than what economists polled by Reuters had forecast, it will likely not diminish the prevalent view among policymakers that a rate cut is needed to counter risk from trade conflicts and softening global demand, analysts said.
Data showed US GDP grew at a 2.1% annualized rate in the second quarter, weaker than the 3.1% pace in the first quarter but stronger than the 1.8% projected by economists polled by Reuters.
"You continue to see this theme that the US is growing well, better than most G7 economies, consistent with dollar strength that we're seeing on the back of this," said Erik Nelson, currency strategist at Wells Fargo Securities in New York.
"I don't think it changes all that much for the Fed next week. We still expect a 25 basis-point cut at the meeting," he added.
In late US trading, the dollar index was up 0.2% at 98.009, after earlier hitting its highest level since late May at 98.088. It gained 0.9% on the week following a rise of about 0.4% the week before.
Interest rate futures suggested traders positioned for the Fed to lower key borrowing costs next week, with an 81% chance of a quarter-point cut, CME Group's FedWatch program showed.
"It takes 50 basis-point (cut) off the table," said Marvin Loh, State Street's global macro strategist, in Boston. "There are enough good things going on in the economy."
The greenback also received a lift after White House adviser Larry Kudlow told CNBC television the United States has ruled out intervention in currency markets to counter other nations from weakening their own currencies to help their exporters.
In other currencies, the euro was down 0.17% at $1.11275, recovering from a two-month low of $1.1112 after the ECB decision on Thursday. For the week, the single currency fell 0.8%.
After the ECB session, President Mario Draghi indicated the bank was prepared to cut rates at its next meeting, in September, and consider other options for easing.
Sterling shed 0.53% to $1.2386 after hitting a 27-month low, after European Commission President Jean-Claude Juncker told Britain's new prime minister, Boris Johnson, that an agreement reached by his predecessor Theresa May was the best and the only Brexit deal.