By Anneken Tappe

The U.S. dollar weakened Thursday, partly due to a buoyant British pound and New Zealand dollar, which were both trading higher on the back of better-than-expected economic data.

Trade headlines dominated North American trading, though much of investors' attention was focused elsewhere. In the latest developments surrounding the North American Free Trade Agreement, a Bloomberg report (https://www.bloomberg.com/news/articles/2018-09-19/u-s-canada-trade-sharper-barbs-before-resuming-nafta-talks) quoted unnamed sources saying that a deal between Canada and the U.S. was unlikely this week.

The ICE U.S. Dollar Index was down 0.6% at 93.926, hovering around a two-month low, despite reversing some earlier weakness against the Canadian dollar , last buying C$1.2912, down 0.1% from Wednesday.

The New Zealand dollar led developed-market currencies as one of the best performers early Thursday, after a report on second-quarter real gross domestic product showed that the New Zealand economy expanded 2.8% year-over-year, beating the expectation of 2.2%.

The kiwi dollar, as the antipodean currency is also known, last bought $0.6688, its highest in three weeks, up from $0.6617 late Wednesday in New York.

In Salzburg, Austria, a European Union summit concerning Brexit is under way, adding the potential of volatility-inducing headlines to Thursday's session.

Read:Why another Brexit summit is unlikely to put investors at ease (http://www.marketwatch.com/story/why-another-brexit-summit-is-unlikely-to-put-investors-at-ease-2018-09-18)

U.K. retail sales for August beat expectations, kicking the trading day off in a similar fashion to Wednesday, when the British pound was pushed in pulled into different directions (http://www.marketwatch.com/story/dollar-drifts-lower-as-brexit-talks-data-make-for-volatile-british-pound-2018-09-19) after a higher than expected inflation read stoked ideas about future rate increases and a report from the Times of London said U.K. Prime Minister Theresa May was going to reject the EU's new Irish border proposal.

In Thursday's headlines, European Council President Donald Tusk said May's Chequers Brexit trade plan wouldn't work, according to reports. Market participants judge the summit to have gone worse for May than the EU, which will now overshadow the Conservative Party conference next week.

The pound was at its strongest since mid-July, buying $1.3268, compared with $1.3143 late Wednesday.

Meanwhile, the euro rose to $1.1775 from $1.1673. The euro-sterling pair saw the euro slide versus its British rival, buying GBP0.8876, down 0.1%.

Also in Europe, the Swiss National Bank kept its policy unchanged, leaving the Swiss franc to strengthen against the U.S. dollar. One buck last bought 0.9594 francs, compared with 0.9671 francs late Wednesday in New York.

"After strengthening noticeably since May, the perceived safe-haven Swiss franc has eased back a little over the past few days as risk assets rallied on relief that the trade dispute between China and the US would ease," said Fawad Razaqzada, market analyst at Forex.com.

Though market expectations for the ultra-dovish SNB were to leave things as they were, investors were looking for clues as to whether the central bank thought its currency was getting too string.

"Well as it turned out, the SNB was surprisingly relaxed about the currency's recent strength, once again describing the franc as merely being "highly valued," Razaqzada said. "Still, the SNB being among the most dovish central banks out there, would not dare give the wrong impression. So to offset the fact that it maintained the language on the Swiss franc, the SNB lowered its inflation forecasts for 2019 and 2020 while suggesting that "the pace of growth is expected to slow slightly."

In emerging markets, Turkey is in focus as the government is due to reveal its medium-term macroeconomic policy plan Thursday. The government cut its growth forecasts for the year, putting GDP growth expectations at 3.8% in 2018 and 2.3% in 2019, compared with previous forecasts of 5.5%. Inflation expectations for year-end were above 20%, reflecting how much consumer prices had heated up all year and how much the ailing lira had pushed them up. The 2019 CPI forecast was around 16%, before falling to 10% in 2020.

The Turkish lira softened against both the dollar and the euro, ahead of the announcement. One dollar bought 6.1901 lira, down 1%, while the euro fetched 7.2904 lira, down 0.1%.

(END) Dow Jones Newswires

September 20, 2018 15:45 ET (19:45 GMT)