The dollar hit a 14-month peak against a basket of currencies on Tuesday as investors bet that the U.S. economy is growing at a pace that is likely to lead the Federal Reserve to begin raising interest rates next year.
The U.S. currency made broad gains on Monday, boosted by research from economists at the San Francisco Fed indicating investors may be underestimating when the Fed is likely to hike rates.
The dollar also has benefited from a weak euro, which has deteriorated since the European Central Bank last week cut rates to new lows and launched an asset-purchase program to ward off deflation.
Better U.S. economic data has boosted the view the Fed may be closer to raising rates, and the dollar's gains have come at the same time as rising Treasury yields. Still continuing slack in the labor market is also viewed as keeping the Fed on hold for several more quarters.
Currencies
The dollar index was last up 0.09 percent at 84.312.
It rose as high as 84.519 in early trading, not far from the July 2013 peak of 84.753. A break there will take it to highs not seen since July 2010.
The greenback also rose to a six-year high of 106.47 , before retracing to last trade at 106.42.
The euro fell to a fresh 14-month low of $1.2860 in the European trading session, before recovering a bit to trade at $1.2912, slightly stronger on the day.
Investors remain broadly short the euro, indicating the euro zone single currency is likely to continue to fall. Last week it registered its eighth consecutive week of losses, its worst losing streak since its introduction in January 1999.
Sterling recovered from a 10-month low on Tuesday after Bank of England Governor Mark Carney made comments suggesting the central bank might start to raise rates in the spring.
But the boost was fleeting amid growing worries that Scotland may vote for independence this month.
Investors had until late August largely ruled out any chance of Scotland breaking away from the three-century-old union. But with recent polls indicating the vote is on a knife edge, hedge funds are scrambling to seek protection from further weakness in the pound, driving up volatility.
Sterling was last down on the day at $1.6084 after falling as low as $1.6060.
—By Reuters