NEW YORK -- The dollar scaled three-month peaks against the yen Thursday after a report showed business activity in the U.S. Midwest expanded at a faster pace than expected.

The data offset news of weaker-than-expected U.S. economic growth for the first quarter reported earlier on Thursday and reduced the perceived chances of Federal Reserve interest rate cuts this year.

Markets still expect the Fed to hold rates steady at its next monetary policy meetings in June and August.

"The data is marginally positive to the dollar, especially in light of today's softer reading on GDP (gross domestic product)," said David Watt, senior currency strategist, at RBC Capital Markets in Toronto.

"The prices paid index is very high and support the Fed's view that inflation remains a top concern and at these levels it may be enough to keep pushing back expectations for a rate cut this year."

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The dollar climbed against the yen to 121.99 yen, the highest since mid-February, and up about 0.2 percent on the day, according to electronic trading platform EBS.

The euro was flat at $1.3441 after trading firmer in London.

On Thursday after the data releases, the implied chances of a Fed rate cut this year were down to 32 pct from about 42 percent late on Wednesday, according to Reuters data.

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