NEW YORK, May 23 Reuters The dollar pared losses against the euro after data showed U.S. business activity accelerated to the highest level in just over two years in May, suggesting that economic growth picked up halfway through the second quarter.

SP Global said on Thursday that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, jumped to 54.4 this month. That was the highest level since April 2022 and followed a final reading of 51.3 in April.

A reading above 50 indicates expansion in the private sector.

The currency action shows the market still responds to strong U.S. economic data in the expected way, said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.

I think the dollar has some more room on the upside, Chandler said.

Data on Thursday also showed the number of Americans filing new claims for unemployment benefits fell last week, pointing to underlying strength in the labour market that should continue to support the economy.

Federal Reserve officials at their last policy meeting said they still had faith that price pressures would ease at least slowly in coming months, but doubts emerged about whether the current level of interest rates was high enough to guarantee that outcome and various officials said they39;d be willing to hike borrowing costs again if inflation surged.

Given the FOMC comments the market is still exaggerating the chances of two rate cuts this year, Chandler said,…