Dollar remains at two-month highs as market awaits US growth data

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The dollar held near two-month highs on Friday and looked set for a second straight weekly gain, as the market awaited US gross domestic product (GDP) numbers for the second quarter.

The dollar’s gains were also helped by widening yield differentials between US and German debt. Spread were also holding at two-month highs at 244 bps.

Investors were disappointed by lack of policy action from the European Central Bank (ECB) at a policy 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 point.

Second-quarter growth figures for the United States due later on Friday will provide a backdrop for the Fed meeting. Expectations are for a 1.8 percent expansion in US GDP, compared with 3.1 percent in the first quarter.

“A number below the 1.8 percent mark should be enough to convince market participants that the Fed will ease policy more than once this year and would weigh down on the dollar,” said Konstantinos Anthis, head of research at ADSS in Abu Dhabi.

“Conversely, if the GDP report surprises to the upside - a printing between 2.0 percent and 2.5 percent should be regarded as sufficiently bullish - the greenback will look to extend its gains as the odds for more easing down the road will retreat.”

Against a basket of its rivals, the dollar rose 0.1 percent at 97.88, just shy of a two-month high of 97.92 in the previous session.

The euro traded at $1.1136, a recovery from a two-month low of $1.1102 after the ECB decision on Thursday but down 0.1 percent on the day. For the week, the single currency is down 0.7 percent.

After the ECB meeting, President Mario Draghi indicated the bank was prepared to cut rates at its next meeting, in September, and consider other options for easing.

Government bond purchases and a revamped policy message are also likely at the next meeting, four sources close to the discussion told Reuters.

Sterling edged down to $1.2428 and was on course for a 0.6 percent weekly loss. Cable has stabilized since Boris Johnson became Britain’s new prime minister, but uncertainty remains on Britain’s negotiations to leave the European Union.

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