By James Ramage
The dollar rose against the yen and euro Thursday after data
showed an expanding U.S. economy, which encouraged investors to
wager on the U.S. currency ahead of inflation numbers due in Japan
and the eurozone.
The dollar rose 0.3% to 109.27 yen. Earlier in the afternoon, it
reached 109.47 yen, its highest level since Oct. 6.
The euro was down 0.2% to $1.2608, paring losses that had pushed
the common currency to its lowest level in more than three
weeks.
U.S. gross domestic product expanded at an annual rate of 3.5%
in the third quarter, the Commerce Department reported, surpassing
economists' forecasts of 3.1% growth. The dollar initially fell
after the GDP report on worries that the gains were fueled by trade
and government spending, not domestic demand. But as the day wore
on, traders saw the report as a stepping stone to higher interest
rates, which would spur demand for the dollar.
"Today's GDP number really justified the vote of confidence the
Fed gave the U.S. economy," said Scott Smith, senior market analyst
with Cambridge Mercantile Group. "On the medium to long-term basis,
this will be a positive for the dollar."
On Wednesday, the Federal Reserve noted the U.S. economy is
improving, particularly when it comes to inflation and the labor
market. The Fed has said its plans to raise interest rates for the
first time since the financial crisis are data-dependent.
Confirmation of a stronger U.S. economy persuaded investors that
the dollar was a better bet than the euro and yen, particularly
ahead of Friday's data. The Bank of Japan is set to release its
latest three-year forecasts for economic growth and prices, which
could offer clues about whether the central bank will tinker with
its aggressive asset-buying program. The eurozone is expected to
release October consumer-price data on Friday showing inflation
remains at five-year lows.
Continued falling prices are likely to prompt the European
Central Bank and the Bank of Japan to adopt further easing
measures, which would weaken their respective currencies.
-- Write to James Ramage at james.ramage@wsj.com