New York - The dollar strengthened Friday after a key US inflation indicator rose, underpinning the Federal Reserve's plan to raise interest rates this year, and fourth-quarter economic growth was stronger than expected.
US core inflation, as measured by the personal consumption expenditures price index, was up 1.7% year-on-year in January, nudging closer to the Fed's 2.0% target.
"Core inflation is showing clear signs of accelerating," said Jim O'Sullivan, chief US economist at High Frequency Economics.
The dollar also got a lift from an upward revision to US economic growth in the fourth quarter that was much better than expected, at a 1.0% annual pace instead of the initial estimate of 0.7%.
While that still marked a slowdown from the third quarter's growth, analysts had expected the rate would be cut to 0.4%.
"Despite mixed internals (consumption slowed slightly), market participants are taking the data as a sign that some of the near-term pessimism regarding the US economy may be overblown," said Christopher Vecchio of Daily FX in a client note.
The euro fell to a session low of $1.0912, its lowest in more than three weeks, before recovering slightly to $1.0935 around 22:00 GMT, down 0.8% from Thursday.
The greenback jumped 0.9% against the Japanese currency at 113.97 yen.
Vecchio said that expectations the Fed would raise its benchmark federal funds rate this year had firmed up slightly after the data.
Investors also kept an eye on the Group of 20's two-day meeting of finance chiefs that opened Friday in Shanghai amid a slowing global economy and weak commodity prices.
With the yuan currency, also known as the renminbi, under pressure from speculation of a looming devaluation, the governor of the People's Bank of China sought to reassure markets, saying that China's economic fundamentals "remain strong".
"There is no basis for persistent renminbi depreciation from the perspective of fundamentals," Zhou Xiaochuan said. "We will not resort to competitive devaluations to boost our advantage in exports."
The Chinese currency continued to fall against the dollar, to 6.5404 yuan per dollar from 6.5317 yuan the prior day.