* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Adds stocks move, updates analyst quote)
By Kate Duguid
NEW YORK, Oct 26 (Reuters) - The U.S. dollar slid alongside Wall Street on Wednesday after having risen to a two-month high in morning trade after U.S. headline third-quarter gross domestic product data exceeded estimates.
The three major U.S. stock indexes fell in late morning trade, extending the week’s selloff, as grim earnings reports from Amazon.com Inc and Alphabet Inc rekindled a rush to dump technology and high-growth stocks.
Investors have responded to the equities selloff with a flight to safety. Against the dollar, the Japanese yen was at its strongest since Sept. 13, up 0.83 percent on the day, last at 111.43.
GDP increased at a 3.5 percent annualized rate, the Commerce Department said on Friday in its first estimate, which boosted the dollar index to a two-month high against a basket of rival currencies.
The U.S. economy slowed less than expected in the third quarter as the strongest consumer spending in nearly four years and a surge in inventory investment offset a tariff-related drop in soybean exports. Net exports took 1.8 percent off of the GDP figure, said Greg Anderson, global head of FX strategy at BMO Capital Markets.
The exchange of tariffs between the United States and China has lifted the value of the dollar, which serves as a safe haven in times of geopolitical turmoil. While a strong currency lifts the value of U.S. assets, it also raises the cost of imports and exports, which can slow growth.
“Unless you are willing and able to push down your currency at the same time that you’re erecting your tariffs, the currency move is going to offset the tariffs,” Anderson said.
The GDP report also showed the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) price index excluding food and energy, missed expectations after it increased 1.6 percent in the third quarter. The core PCE price index rose at a 2.1 percent pace in the April-June period.
Soft inflation data also boosted the dollar. Despite the strong headline growth, it may give the Federal Reserve a reason to pause its rate-hiking cycle at the Federal Open Markets Committee meeting in December, said Anderson.
The euro fell to a 10-week low of $1.133. It hit a two-month low of $1.135 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. (Reporting by Kate Duguid and Tom Finn; Editing by Bernadette Baum and David Gregorio)