(This story corrects headline, first and sixth paragraphs to show the index hit an 18-month high, not 19, dating back to June 2017, not May)
By Richard Leong
NEW YORK (Reuters) - The dollar rose to a 18-month high against a basket of currencies on Friday, as worrisome political and economic news outside the United States drove a strong bid for the safety of the greenback.
The Chinese yuan fell after data showed China’s retail sales in November grew at the slowest pace since 2003 and industrial output marked its weakest growth in nearly three years. The offshore yuan shed 0.36 percent to 6.9025 per dollar.
The euro fell as the euro zone’s two largest members showed signs of a slowdown.
Sterling weakened as traders worried that British Prime Minister Theresa May was struggling to secure assurances from the European Union over her Brexit withdrawal deal after she survived a confidence vote earlier this week.
“The dollar is not so much rallying as much as everyone else is falling,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
An index that tracks the greenback versus six major peers hit its highest level since June 2017, at 97.711. At 11:02 a.m. (1602 GMT), the index was up 0.38 percent at 97.434, putting it on track for its best week since early August.
The greenback’s appeal grew following upbeat data on U.S. retail sales and industrial output in November.
The dollar’s gains were limited by bets the Federal Reserve might soon pause in raising interest rates after a widely expected hike next week of a quarter point, to 2.25-2.50 percent.
“The market is skeptical about the U.S. economy and whether the Fed would hike further after December,” Schlossberg said.
The greenback was also held back by the probability of a partial U.S. government shutdown as President Donald Trump and federal lawmakers disagree over funding for a border wall, analysts said.
(Graphic: Dollar index vs federal funds rate link: tmsnrt.rs/2QQzbkm)
The euro was down 0.43 percent at $1.13045 after German data showed private-sector expansion slowed to a four-year low in December and French business activity unexpectedly contracted.
European Central Bank President Mario Draghi told European Union leaders growth was weaker than previously forecast and urged them to go forward with reforms of the euro zone, one official told Reuters.
“I interpret this as caution that we already know is perpetual in the ECB’s thinking,” said Juan Perez, senior currency trader at Tempus, Inc in Washington.
Worries about the European economy were also stoked by uncertainty whether May could convince the British parliament to approve her Brexit deal.
The pound was 0.59 percent lower, at $1.2585, holding above the 20-month low of $1.2477 reached on Wednesday.
(Graphic: Euro, sterling since Brexit referendum link: tmsnrt.rs/2ytup0V)
Reporting by Richard Leong; Additional reporting by Tommy Wilkes in London; Editing by Chizu Nomiyama and Leslie Adler