July 26, 2019 / 2:14 PM / 4 months ago

FOREX-Dollar hits 2-month high after U.S. growth data

    * U.S. GDP rises 2.1% in Q2, better than expected
    * Data does not change Fed expectation for a rate cut next week
    * Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

 (Recasts, adds comment, FX table, U.S. GDP data, updates prices, changes byline, dateline; previous
    By Gertrude Chavez-Dreyfuss
    NEW YORK, July 26 (Reuters) - The dollar climbed to two-month peaks on Friday and was on pace for a
second straight weekly gain after data showed the world's largest economy slowed at a less-than-expected
pace in the second quarter.
    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 249 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 a quarter of a percentage point.
    A better-than-expected U.S. gross domestic product report for the second quarter is not likely to
change the Fed's mindset, analysts said.
    Data showed U.S. GDP grew at a 2.1% annualized rate in the second quarter. The economy advanced at an
unrevised 3.1% pace in the first quarter. Economists polled by Reuters had forecast GDP rising at just a
1.8% rate in the second quarter.
    "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 midmorning trading, the dollar index was up 0.1% at 97.927, after earlier hitting its
highest level since late May.
    The greenback was little changed against the yen at 108.66 yen.
    Steve Blitz, chief U.S. economist at TS Lombard, believes that with the GDP data, Fed Chairman Jerome
Powell would have a hard time convincing the hawks on the Federal Open Market Committee of the need for a
quick 50 basis-point cut.
    "So here is the Fed, faced with overall growth at trend created by the combination of a slowing
business sector yet still strong consumption — a function of stable if slower employment growth and a
strong stock market," Blitz said.
    In other currencies, the euro was down 0.2% at $1.1127, recovering from a two-month low of
$1.1102 after the ECB decision on Thursday. For the week, the single currency is down 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, meanwhile, slipped 0.2% to $1.2425 and was on course for a 0.6% weekly loss. Cable has
stabilized since Boris Johnson became Britain's new prime minister, but uncertainty remains about the
country's negotiations to leave the European Union.
    Currency bid prices at 9:56AM (1356 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct     High Bid    Low Bid
                                              Previous                   Change                 
 Euro/Dollar      EUR=        $1.1128        $1.1145     -0.15%         -2.97%      +1.1150     +1.1126
 Dollar/Yen       JPY=        108.6600       108.6200    +0.04%         -1.45%      +108.8200   +108.5700
 Euro/Yen         EURJPY=     120.93         121.09      -0.13%         -4.19%      +121.1900   +120.9200
 Dollar/Swiss     CHF=        0.9935         0.9906      +0.29%         +1.23%      +0.9937     +0.9901
 Sterling/Dollar  GBP=        1.2406         1.2454      -0.39%         -2.75%      +1.2462     +1.2408
 Dollar/Canadian  CAD=        1.3186         1.3161      +0.19%         -3.31%      +1.3193     +1.3157
 Australian/Doll  AUD=        0.6915         0.6950      -0.50%         -1.90%      +0.6955     +0.6917
 Euro/Swiss       EURCHF=     1.1059         1.1042      +0.15%         -1.73%      +1.1061     +1.1038
 Euro/Sterling    EURGBP=     0.8970         0.8950      +0.22%         -0.16%      +0.8970     +0.8948
 NZ Dollar/Dolar  NZD=        0.6633         0.6662      -0.44%         -1.25%      +0.6669     +0.6635
 Dollar/Norway    NOK=        8.7086         8.6725      +0.42%         +0.81%      +8.7162     +8.6742
 Euro/Norway      EURNOK=     9.6919         9.6707      +0.22%         -2.16%      +9.7101     +9.6683
 Dollar/Sweden    SEK=        9.4732         9.4475      +0.09%         +5.68%      +9.4863     +9.4453
 Euro/Sweden      EURSEK=     10.5443        10.5343     +0.09%         +2.73%      +10.5637    +10.5277
 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saikat Chatterjee in London
Editing by Nick Zieminski)
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