NEW YORK: The dollar dropped to a nine-week low on Wednesday after data showed the U.S. economy grew much more slowly than expected in the first quarter, reinforcing expectations for a gradual pace of interest rate rises by the Federal Reserve.
Benefiting from the dollar's losses, the euro climbed to an eight-week peak, buoyed by data showing a euro zone recovery gathering pace.
The dollar index, a gauge of the greenback's value against major currencies, hit its lowest level since late February, falling for a sixth consecutive day.
Data on Wednesday showed the U.S. economy grew just 0.2 percent in the first quarter, down sharply from the fourth quarter's 2.2 percent clip. The first-quarter reading was also much lower than market expectations for a 1.0 percent growth.
"The(GDP) breakdown is not as weak as the final sales number and inventory build data suggests," said Alan Ruskin, global head of currency strategy at Deutsche Bank in New York.
"Clearly, the FX market thinks otherwise," he said, adding the headline number fits with the broad technical signals that favored dollar weakness in recent days.
In midday trading, the dollar index was down 1.4 percent at 94.813. It dropped to 94.746, a nine-week trough, and has lost 4.5 percent the last three weeks.
The euro, meanwhile, rose above $1.11, last at $1.1169 , supported by data showing lending to euro zone households and companies rose in March for the first time in three years.
In addition, news that Greece was expected to present draft reform legislation to international lenders on Wednesday in efforts to show it is serious about acting on pledges to secure aid also helped shore up sentiment. German bund yields inched higher, as a result, lifting the euro.
Volume on euro trading versus the dollar was about $5.2 billion on the Thomson Reuters platform. Data also showed that euro/dollar volume on Wednesday was roughly 165 percent higher than the one-month average.
Focus now shifts to the statement the Fed will issue on Wednesday afternoon when it concludes its two-day policy meeting. Investors expect it to adopt a more dovish tone.
The Fed is widely expected to keep policy unchanged and the focus will be on its economic assessment. The central bank decision comes as the U.S. economy has hit a soft patch, blamed largely on harsh winter weather, a strong dollar, and disruptions at West Coast ports.
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