By Tom Finn
LONDON (Reuters) - The dollar hovered near a 10-week high on Friday as investors waited to see if U.S. economic growth figures do anything to interrupt its months of strength.
Donald Trump has expressed displeasure over the dollar's strength, defying a custom that U.S. presidents avoid openly interfering in financial markets.
Traders expect a potentially strong reading of U.S. gross domestic product data on Friday which could see the dollar climb further.
"Today's robust U.S. GDP will illustrate to the market the deep division between the U.S. and the euro zone when it comes to growth performance," said Commerzbank (DE:CBKG) analyst Thu Lan Nguyen.
Speculation that U.S. interest rates will be hiked more aggressively than anticipated next year would see the dollar strengthen against the euro, she added.
If the reading is lower than expectations, however, investors could worry about economic growth momentum hastening a change in the Federal Reserve's monetary tightening path.
"This number could give signs if we are close to peak earnings for U.S. corporates. Housing data and consumer goods durables data has been soft lately," said Sim Moh Siong, currency strategist at Bank of Singapore.
The U.S. economy is expected to have grown at a 3.3 percent annualized rate in the third quarter, following 4.2 percent in the second quarter. The Fed is expected to raise rates by 25 basis points in December.
The euro, meanwhile, (EUR=EBS) traded marginally higher at $1.1383 on Friday. It hit a two-month low of $1.1353 the previous session, following European Central Bank President Mario Draghi's failure to convince traders the ECB could pursue monetary tightening after next summer as political and economic uncertainties grow in the monetary union.
The policy guidance has been consistent since June, even though the economic outlook has darkened as political turmoil about Italy looms over the currency bloc.
Analysts said markets remain skeptical about the ECB rates given inflation remains tepid.
Elsewhere, a rebound of U.S. stocks on Thursday following the previous session's big sell-off was not sustained into the Asian day, which lent support to safe haven currencies.
The U.S. dollar lost 0.2 percent to be 112.14 versus the Japanese yen
The dollar index (DXY) traded flat at 96.56 on Friday, after hitting a two-month high on Thursday. The gains in the dollar index were largely due to the losses in the euro, which has a 57.6 percent weighting in the index.
The dollar has been supported by positive sentiment on Wall Street recently as blue-chip names such as Microsoft (O:MSFT) delivered strong earnings.
Analysts see many persisting risks for markets, including trade tensions, Italy's budget woes, geopolitical uncertainties and concerns about U.S. corporate earnings.
"Is there a slowdown coming at the moment? That's the question, and the combination of all these factors is dragging down sentiment," said Miraji Othman, credit strategist at BayernLB.
(Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh)