The pace of US economic growth picked up in the second quarter after a tepid showing in the first three months as consumer spending picked up pace, and federal government investment and exports expanded.
Preliminary data from the Department of Commerce showed that while gross domestic product increased substantially, personal income grew at a slower pace than in the first three months.
Dollar bulls appeared to be disappointed by further evidence of weakening inflationary pressures and the US currency fell following the data.
Gross domestic product
Real GDP increased at an annual rate of 2.6% in the second quarter, up from 1.2% in the first three months. Economists had expected the Q2 figure to be closer to 2.7%.
Growth in exports and federal government spending were partially offset by weaker residential investments and state and local government spending.
Meanwhile, imports – which are subtracted from GDP calculations – increased and made a larger negative contribution due to the weaker dollar.
With little inflationary pressure present, personal income growth slowed to $118.9bn in the second quarter, from $217.6bn in the first.
Disposable personal income increased by $122.1bn, or 3.5%, in Q2, compared with an increase of $176.3bn, or 5.1%, in the first three months.
Despite the "in-line" headline GDP number, the dollar reacted with losses, falling 0.3% against a basked of its peers.
The dollar lost 0.5% against the euro to $1.1729 and was 0.2% weaker versus the pound at $1.3086.
"Although US GDP printed in line with expectations, price action suggests that concerns over stubbornly low inflation in the US," said Lukman Otunuga at FXTM.
Nikita Shah at Capital Economics said: “We expect US GDP growth to slow a touch over the rest of this year but it should still average a decent 2.2% in 2017, up from 1.5% last year.”