FOREX-U.S. data lifts dollar, pound strengthens on hope for soft Brexit

(Recasts, updates prices, changes byline and dateline from LONDON to NEW YORK)

By Kate Duguid

NEW YORK, Jan 17 (Reuters) - The U.S. dollar ticked up on Thursday after stronger than expected economic data reports, while the pound stabilized as British policymakers sought consensus on how to exit the European Union.

The number of Americans filing applications for jobless benefits unexpectedly fell last week, pointing to sustained labor market strength that should continue to underpin the economy.

The Philadelphia Federal Reserve said on Thursday its barometer on U.S. Mid-Atlantic (Shanghai: 600558.SS - news) business activity increased more than forecast in January, suggesting resilience in the region's manufacturing sector amid trade tensions between China and the United States.

These signs helped mitigate investor fears about slowing U.S. economic growth, the effects of a trade war with China and the ongoing government shutdown. Against the euro, the dollar strengthened to $1.139, near a two-week high.

Weak euro zone data pulled the single currency lower. Inflation data for the trade bloc showed price pressures receding further from the central bank's target, complicating the situation for the European Central Bank which currently expects to raise interest rates later this year.

The single currency has fallen 1.7 percent over the last week, kicked off by reports that the German economy grew by 1.5 percent in 2018, the weakest rate of expansion in five years.

"Euro zone data has been quite disappointing and that is prompting the euro to underperform the struggling dollar in the opening weeks of the year," said Alvin Tan, a currency strategist at Societe Generale (Swiss: 519928.SW - news) in London.

The euro's weakness comes at a time when the dollar itself has struggled to gain momentum. On Jan. 10, the dollar almost fell below its 200-day moving average when the index touched a three-month low of 95.029. Since then it has rebounded but is still down 0.1 percent so far this month.

The British pound rose to a two-month high against the euro on Thursday, extending recent gains on growing expectations that Britain can avoid a no-deal withdrawal from the European Union.

In a tumultuous week for British politics, Prime Minister Theresa May's Brexit deal suffered a heavy defeat in parliament but she won a subsequent vote of confidence, removing some political uncertainty for now.

The pound also firmed towards a two-month high against the dollar. It was trading 0.3 percent up at $1.292, inching towards a mid-November high of $1.293. (Reporting by Kate Duguid in New York and Ritvik Carvalho in London Editing by Susan Thomas)