July 26, 2019 / 6:55 PM / 4 months ago

FOREX-Dollar hits two-month high as U.S. growth slows less than forecast

    * U.S. GDP decelerates to 2.1% in Q2, not as slow as expected
    * Data does not change Fed expectation for a rate cut next week
    * U.S. nixed currency intervention -White House adviser Kudlow 
    * GRAPHIC-World FX rates in 2019: tmsnrt.rs/2egbfVh

 (Updates market action, adds analyst comment, graphic)
    By Gertrude Chavez-Dreyfuss and Richard Leong
    NEW YORK, July 26 (Reuters) - The dollar reached two-month peaks on Friday, as
better-than-expected U.S. 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 U.S. 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 U.S. 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 U.S. 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 U.S. 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 U.S. 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
    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.
    Currency bid prices at 2:28PM (1828 GMT)
 Description      RIC       Last      U.S.      Pct      YTD Pct  High Bid   Low Bid
                                      Close     Change   Change              
 Euro/Dollar      EUR=      $1.1125   $1.1145   -0.18%   -3.00%   +1.1150    +1.1113
 Dollar/Yen       JPY=      108.6900  108.6200  +0.06%   -1.42%   +108.8200  +108.5700
 Euro/Yen         EURJPY=   120.95    121.09    -0.12%   -4.18%   +121.1900  +120.8000
 Dollar/Swiss     CHF=      0.9940    0.9906    +0.34%   +1.28%   +0.9946    +0.9901
 Sterling/Dollar  GBP=      1.2385    1.2454    -0.55%   -2.92%   +1.2462    +1.2377
 Dollar/Canadian  CAD=      1.3174    1.3161    +0.10%   -3.40%   +1.3198    +1.3157
 Australian/Doll  AUD=      0.6909    0.6950    -0.59%   -1.99%   +0.6955    +0.6903
 Euro/Swiss       EURCHF=   1.1062    1.1042    +0.18%   -1.71%   +1.1063    +1.1038
 Euro/Sterling    EURGBP=   0.8983    0.8950    +0.37%   -0.01%   +0.8985    +0.8948
 NZ               NZD=      0.6632    0.6662    -0.45%   -1.27%   +0.6669    +0.6627
 Dollar/Norway    NOK=      8.7175    8.6725    +0.52%   +0.91%   +8.7316    +8.6742
 Euro/Norway      EURNOK=   9.7002    9.6707    +0.31%   -2.08%   +9.7101    +9.6683
 Dollar/Sweden    SEK=      9.5011    9.4475    +0.39%   +5.99%   +9.5101    +9.4453
 Euro/Sweden      EURSEK=   10.5757   10.5343   +0.39%   +3.04%   +10.5777   +10.5277

 (Reporting by Gertrude Chavez-Dreyfuss and Richard Leong in New York
Additional reporting by Saikat Chatterjee in London
Editing by Nick Zieminski and Matthew Lewis)
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