NEW YORK (Reuters) - The dollar rose to a 10-week high against the yen and pared losses versus the euro on Thursday, after U.S. data showed 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, U.S. 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 afternoon trading, the dollar index was up slightly at 96.175 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 0.5 percent to 111.48 yen, turning positive after the U.S. GDP data, and hitting a 10-week high of 111.49 yen.
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 U.S. (interest rate) hike this year, so there’s no real change to that,” he added.
The euro, meanwhile, was up 0.1 percent at $1.1376, paring gains that took it to a three-week high.
Latest positioning data showed speculators have been ramping up negative bets on the euro since December to a near two-year high on concerns European policymakers won’t raise interest rates this year.
The safe-haven Swiss franc, meanwhile, rallied against the dollar, which fell 0.4 percent to 0.9973 franc, after weak Chinese factory data and after talks between U.S. President Donald Trump and North Korean leader Kim Jong Un at their second nuclear summit collapsed unexpectedly.
The franc tends to rally in times of geopolitical tension.
Trump said no deal was reached because Kim wanted all sanctions lifted in exchange for partial denuclearization.
“The disheartening and abrupt end to the meeting didn’t inspire confidence in the ongoing U.S.-China trade negotiations,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
In China, meanwhile, factory activity reached a three-year low in February as export orders fell at the fastest pace since the global financial crisis, more evidence of an economy facing weak demand at home and abroad.
Graphic: World FX rates in 2019 - tmsnrt.rs/2egbfVh
Reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan Oatis