Dollar gains top 1 percent on US rates outlook

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The dollar rose more than 1 percent against other major currencies on Tuesday, extending recent gains largely driven by increasing expectations the Federal Reserve will start raising U.S. interest rates in 2015.

The dollar climbed to its highest in nearly eight years against the Japanese yen and pushed the euro, already weighed down by anxieties over Greece's financial crisis, below $1.09 for the first time in a month.

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The dollar index, composed of six leading currencies traded against the greenback, was last up 1.38 percent at 97.34.

That was the latest in a string of gains since last week, when U.S. core inflation rose unexpectedly and Fed Chair Janet Yellen said a rate hike looked likely before year's end.

Against the yen, the dollar broke through longer-term resistance and topped 123 yen to a high of 123.33 yen, a level last seen in 2007, after government officials reported that U.S. business investment spending plans increased solidly for a second straight month in April. It was last up 1.22 percent at 123.04 yen.

U.S. non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rose 1.0 percent last month after an upwardly revised 1.5 percent increase in March, according to the Commerce Department.

Other data on Tuesday signaling economic growth included a rise in U.S. consumer confidence and unexpectedly strong gains last month in sales of new single-family homes.

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"With U.S. interest yields looking to move up, that has been supportive of the dollar against the yen," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida.

The euro was last off 0.98 percent at $1.0871, near its low for the day as traders pointed to growing nerves over Greece, as well as a fall-back in German government bond yields, as making the dollar relatively more attractive.

"The dollar is back on a bullish trend," said Ian Stannard, head of European FX strategy with Morgan Stanley in London. "The adjustment has now been completed, and the dollar can now react to any positive news. Dollar yen breaking through the top of the range is an important event."

Doubts over whether the Fed can raise interest rates this year have been at the heart of a rough few weeks for the dollar.

The Swiss franc was another winner from the euro's weakness, rising to 1.0357 .