Investing.com - The dollar strengthened against most major currencies on Wednesday on news the U.S. economy grew much more in the second quarter than anticipated, though a somewhat dovish take on the labor market from the Federal Reserve watered down the greenback's gains.
In U.S. trading on Wednesday, EUR/USD was down 0.15% at 1.3390.
The Commerce Department reported earlier that gross domestic product expanded at an annual rate of 4.0% in the three months to June, blowing past forecasts for a 3.0% reading. The contraction in the first quarter was revised to 2.1% from a previously reported 2.9%.
Personal consumption grew 2.5%, well above predictions of 1.9%, the report said, adding to the view that the economic recovery is gaining traction.
Despite improvements taking place in the economy, slackness remains in the labor market, which prompted the Federal Reserve on Wednesday to stick with its policy of making $10 billion cuts to its monthly bond-buying program as the year unfolds.
The Fed is currently purchasing $25 billion in Treasury and mortgage debt securities a month to spur recovery, which tends to weaken the dollar by keeping interest rates low.
Markets were hoping for a more upbeat take on the economy.
"Labor market conditions improved, with the unemployment rate declining further. However, a range of labor market indicators suggests that there remains significant underutilization of labor resources," the Fed's statement read.
Household spending is on the mend while business fixed investment is advancing, although recovery in the housing sector remains slow.
Fiscal policy continues to weigh on growth though the extent of which is diminishing, while consumer prices are stable.
"Inflation has moved somewhat closer to the Committee's longer-run objective. Longer-term inflation expectations have remained stable," the statement read.
"The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced and judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat."
Elsewhere, payroll processor ADP reported that the U.S. private sector added 218,000 jobs in July, missing forecasts for a 230,000 reading.
Meanwhile in Europe, the euro came under pressure due to ongoing concerns that the European Central Bank remains poised to loosen policy while the Federal Reserve and other central banks are looking towards tightening.
Data released earlier revealed that Spain’s economy grew 0.6% in the second quarter, beating expectations for a 0.5% reading though consumer prices fell unexpectedly in July, underling concerns over the threat of deflationary pressures in the euro area.
Another report showed that the annual rate of inflation in Germany slowed to 0.8% this month from 1% in June.
The dollar was up against the yen, with USD/JPY up 0.70% at 102.83, and up against the Swiss franc, with USD/CHF up 0.23% at 0.9090.
The greenback was up against the pound, with GBP/USD down 0.21% at 1.6909.
The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.45% at 1.0901, AUD/USD down 0.62% at 0.9326 and NZD/USD down 0.21% at 0.8486.
The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.27% at 81.53.
On Thursday, the U.S. is to release the weekly report on initial jobless claims, as well as data on manufacturing activity in the Chicago area.