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FOREX-Dollar firms on Fed rate expectations, awaits U.S. GDP report

Published 30/07/2015, 01:52 pm
© Reuters. FOREX-Dollar firms on Fed rate expectations, awaits U.S. GDP report
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* U.S. central bank keeps door open to September rate hike

* Q2 U.S. GDP report awaited later in the session

By Lisa Twaronite

TOKYO, July 30 (Reuters) - The dollar firmed to a near one-week high on Thursday ahead of U.S. gross domestic product data that could reinforce expectations that the Federal Reserve is on track to raise interest rates as early as September.

"We're seeing some pretty good follow-through, in terms of U.S. dollar-buying, after the Fed statement (on Wednesday) which suggests that September still appears to be an option," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.

"So the outperformance is pretty consistent with what we're seeing in U.S. Treasuries, which have held their losses after that statement,"

"It's not a done deal, but we are still of the view that a September lift-off is in the cards, contingent on the view that the data out of the U.S. continues to be firm," she said.

The U.S. central bank said after its regular policy meeting on Wednesday that the economy and job market continue to strengthen, leaving the door open for a possible interest rate increase at its next meeting.

The yield on benchmark 10-year U.S. Treasuries US10YT=RR rose to 2.314 percent in Asian trading, compared to its U.S. close of 2.277 percent on Wednesday, when it ended off session highs touched in the wake of the central bank's announcement.

The Fed's statement underscored that the economy had overcome a first-quarter slowdown and was now "expanding modestly."

The first estimate of second-quarter U.S. GDP will be published later on Thursday. The economy is seen returning to growth after a contraction in the weather-battered first quarter.

Another weak GDP reading might "undermine the optimistic outlook held by the Fed and fuel near-term headwinds for the greenback as it raises the risk for a further delay in the normalization cycle," David Song, currency analyst at DailyFX, said in a note to clients.

In contrast, Japanese data on Thursday showed the country's factory output rose only modestly in June after a big drop in the previous month, heightening fears of a second-quarter economic slump.

The dollar added about 0.1 percent on the day to 124.110 yen JPY=EBS , after rising as high as 124.19, its highest since July 24.

The euro edged about 0.1 percent lower to $1.0974 EUR=EBS , after earlier drifting down to $1.0959.

The dollar index, which tracks the U.S. unit against a basket of six major rivals, added about 0.3 percent on the day to 97.228 .DXY , after rising as high as 97.315, its highest since July 24.

Most economists forecast U.S. economic growth will pick up and that the Fed will begin tightening monetary policy in September, according to a Reuters poll published last week.

(Editing by Shri Navaratnam & Kim Coghill)

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