The US dollar reached two-month peaks on Friday, as better-than-expected US growth data did not alter the view that the US Federal Reserve would soon lower rates for the first time in a decade.
The US 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 (ECB) at a meeting on Thursday.
Their attention would now shift to a Fed meeting next week, when policymakers are expected to cut interest rates by 25 basis points to 2 to 2.25 percent.
While US GDP 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 that US GDP grew at a 2.1 percent annualized rate in the second quarter of this year, weaker than the 3.1 percent pace in the first quarter, but stronger than the 1.8 percent 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 LLC 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 US dollar index was up 0.2 percent at 98.009, after earlier hitting its highest level since late May at 98.088.
It gained 0.9 percent on the week following a rise of about 0.4 percent the week before.
Interest rate futures suggested traders positioned for the Fed to lower key borrowing costs next week, with an 81 percent 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.”
In Taipei, the New Taiwan dollar fell against the greenback, slipping NT$0.005 to close at NT$31.090, down 0.1 percent for the week.
The euro on Friday fell 0.17 percent to US$1.11275, recovering from a two-month low of US$1.1112 after the ECB’s decision on Thursday.
For the week, the single currency fell 0.8 percent.
After the ECB session, ECB President Mario Draghi said the bank was prepared to cut rates at its next meeting in September and consider other options for easing.
Sterling shed 0.53 percent to US$1.2386 after hitting a 27-month low, after European Commission President Jean-Claude Juncker told British Prime Minister Boris Johnson that an agreement reached by his predecessor, Theresa May, was the best and the only Brexit deal.
Additional reporting by CNA
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