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 U.S. 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 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 U.S. second-quarter gross domestic product data came in weak.
The median forecast in a Reuters poll is for the U.S. advance third-quarter GDP data to show growth of 2.5 percent, up from 1.4 percent in the previous quarter. ECONUS
"We expect an annualized 2.9 percent quarter-on-quarter growth," Commerzbank currency strategist Antje Praefcke said, noting 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 was steady at 105.30, having risen in early London trade to 105.42 yen JPY=, its highest level since July, with gains underpinned by higher U.S. Treasury yields and a rise in U.S. three-month LIBOR.
That rate – key for inter-bank lending – hit its highest since 2009 USD3MFSR=X in part due to growing expectations of a rate hike in December.
U.S. interest rate futures are implying a more than 75-percent chance of the Fed raising interest rates by December, according to the CME Group's FedWatch tool.
A rise in U.S. bond yields has helped bolster the dollar in recent weeks, the greenback having risen 3.8 percent against the yen so far this month, its biggest monthly gain since May.
The euro EUR= edged higher to $1.0910, but was down nearly 3 percent for the month. German inflation data accelerated in October, although French inflation fell short of expectations. Inflation for the whole euro zone is due on Monday.
"Expect euro/dollar to come under pressure from a robust U.S. GDP print, with a weekly close below $1.0850 confirmation of the short-term bearish bias," ING currency strategist Viraj Patel said.
Meanwhile, sterling fell, hitting an eight-day low against the euro EURGBP=D4 GBP=, after Northern Ireland's High Court ruled that the law of the province did not restrict Britain's ability to trigger an exit from the European Union.
A similar case has been taken to London's High Court, with campaigners arguing the government does not have the authority to trigger Article 50 without parliament's explicit support