The dollar advanced to a three-month high against the yen on Friday, on track for monthly gains against most major currencies as investors waited for US third-quarter growth data later in the day.
A solid number would give the Federal Reserve an opportunity to upgrade the economic assessment in the November statement and boost the prospects for a December rate hike.
It could also help reassure stock markets, which would be supportive of the dollar against the safe-haven yen, traders said.
A disappointing result, however, could trigger a fall in the dollar, a scenario that played out in late July when US second-quarter gross domestic product data came in weak.
The median forecast in a Reuters poll is for the US advance third-quarter GDP data to show growth of 2.5 per cent, up from 1.4 per cent in the previous quarter.
“We expect an annualised 2.9 per cent quarter-on-quarter growth,” said Antje Praefcke, currency strategist at Commerzbank, adding that positive trade data issued on Wednesday had raised the chances of a better-than-expected outcome.
“That would come as a surprise to the market and may cause the dollar to appreciate.”
The dollar rose 0.1 per cent in early London trade to 105.42 yen, its highest level since July, its gains underpinned by higher US Treasury yields and a rise in US three-month LIBOR -- a key rate for inter-bank lending -- which hit its highest since 2009. That rise was in part due to growing expectations of a rate hike in December.
US interest rate futures are implying a more than 75 per cent chance of the Fed raising interest rates by December, according to the CME Group’s FedWatch tool.
A rise in US bond yields has helped bolster the dollar in recent weeks, the greenback having risen 3.7 per cent against the yen so far this month, its biggest monthly gain since May.
The euro edged higher to $1.0916, but was down nearly 3 per cent for the month. The focus in Europe will be on German and French inflation data, which will be scrutinised for clues to euro zone inflation data due on Monday.
“Any slippage (in inflation) may raise questions over an already feeble euro zone inflation outlook,” said Viraj Patel, currency strategist at ING.
“Expect euro/dollar to come under pressure from a robust US GDP print, with a weekly close below $1.0850 confirmation of the short-term bearish bias.”