By Karen Brettell
NEW YORK (Reuters) - The greenback weakened against the euro on Wednesday as better-than-expected economic growth data in China bolstered risk appetite and a day ahead of the release of closely watched economic data for the euro zone.
China's economy grew at a steady 6.4 percent pace in the first quarter, defying expectations for a further slowdown, as industrial production surged and consumer demand showed signs of improvement.
“Risk sentiment seems to have improved overnight on the back of the strong Chinese data,” said Shaun Osborne, chief FX strategist at Scotiabank in Toronto.
Investors are closely watching Chinese and European economic data for signals that global growth is recovering.
The release of Purchasing Managers Indexes (PMIs) for the manufacturing and service sectors in Europe on Thursday will provide the next indication of the strength of the European economy.
Investment inflows into Europe have been improving, which may give the euro a boost against the greenback.
“We’re at the upper end of the range for the dollar and we think seasonal pressures should start to weigh a little bit more on the dollar going forward. Generally this is about the time of year when the dollar starts to soften up from a seasonal point of view,” Osborne said.
The Australian dollar jumped on the Chinese data before giving back the gains. The currency is sensitive to the economic fortunes of China, Australia’s biggest trading partner.
The Aussie weakened on Tuesday after the Reserve Bank of Australia said that a cut in interest rates would be "appropriate" should inflation stay low and unemployment trend higher.
The New Zealand dollar fell after data showed that annual inflation slowed in the first quarter, which raised the odds of an interest rate cut in the coming months.
Other data on Wednesday showed that the U.S. trade deficit fell to an eight-month low in February as imports from China plunged, temporarily providing a boost to President Donald Trump's "America First" agenda and economic growth in the first quarter.
(Reporting by Karen Brettell; Additional reporting by Tom Finn in London; Editing by Bernadette Baum and Leslie Adler)