* Trade, inventories power U.S. economy to 3.2% growth in Q1
* Sterling on pace to end week down 0.5% on Brexit woes (New throughout, updates rates and adds comments post-U.S. market open; new byline, changes dateline, previous LONDON)
By Saqib Iqbal Ahmed
NEW YORK, April 26 (Reuters) - The dollar fell against a basket of other currencies on Friday, after an overall strong U.S. first-quarter growth report was overshadowed by soft inflation data.
Gross domestic product increased at a 3.2 percent annualized rate in the quarter, the Commerce Department said in its advance GDP report, released on Friday, versus the 2.0 percent estimated by economists polled by Reuters.
The dollar, however, did not enjoy a boost from the report as traders focused on the core personal expenditures consumption price index figure, the Federal Reserve’s preferred inflation gauge, which increased at only a 1.3% rate versus 1.8% in the prior quarter.
“Overall, U.S. growth last quarter was outstanding. But the soft inflation components were enough to spur some profit-taking in the buck’s winning week,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The dollar index, which measures the greenback against six other major currencies, was 0.33% lower at 97.882. The index, which hit a 23-month high earlier in the session, is up 0.5% for the week.
While, the forecast-beating headline numbers defied the notion that the U.S. economy is slowing as fiscal stimulus fades, the underlying numbers offered plenty of causes for concern, Paul Ashworth, chief U.S. economist at Capital Economics, said in a note.
“Taking out the over-sized boosts from net trade, inventories and highways investment, which will all be reversed in the coming quarters, growth was only around 1.0%,” Ashworth said.
“Under those circumstances, we continue to expect that overall growth will slow this year, forcing the Fed to begin cutting interest rates before year-end,” he said.
The Fed recently suspended its three-year monetary policy tightening campaign, dropping forecasts for any interest rate hikes this year.
Recent U.S. data has been robust and has reinforced the belief that the United States is on a firmer economic footing than other leading economies.
“Once the dust settles, the focus should shift back to the bullish U.S. growth theme which has been resoundingly positive for the dollar,” said Manimbo.
The euro which is hovering near its weakest level against the greenback since May 2017, amid worries about the strength of the euro zone economy, was up 0.34% at $1.1168, ahead of a national election in Spain on Sunday.
The pound rose 0.31% on Friday, but remained on pace to finish the week down about 0.5%, amid growing concern about stagnant talks around Britain’s exit from the European Union, or Brexit.
Reporting by Saqib Iqbal Ahmed; Editing by Steve Orlofsky