The dollar hit fresh 16-month highs against the euro on Wednesday as investors priced for the prospect that the Federal Reserve will begin hiking rates in mid-2022 while the European Central Bank is expected to remain more dovish as growth in the region lags.
Fed officials have contributed to the more hawkish view on U.S. interest rates as the central bank faces stubbornly high inflation.
San Francisco Fed President Mary Daly said on Wednesday that she could see a case being made to speed up the Fed's tapering of its bond purchases. Fed Vice Chair Richard Clarida said last week that it may be appropriate to discuss speeding up the pace of its taper at the Fed's December 14-15 meeting.
The dollar's strength is "a reflection of the willing dovishness the leadership of the ECB is presenting, versus a little more concern being shown by the Fed for inflation, so therefore maybe a little bit of a divergence on policies," said Lou Brien, a market strategist at DRW Trading in Chicago.
The dollar index gained 0.38% on the day to 96.864. The euro fell 0.44% to $1.1199.
The single currency was hurt by data showing German business morale deteriorated for the fifth month running in November as supply bottlenecks in manufacturing and a spike in coronavirus infections clouded the growth outlook for Europe's largest economy.
The dollar hit a fresh four-and-a-half year high of 115.44 against the Japanese yen after data showed that U.S. consumer spending increased more than expected in October, while price pressures also heated up during the month.
The greenback also reached a seven-month high against the Swiss franc.
The number of Americans filing new claims for unemployment benefits fell to the lowest level since 1969 last week, while gross domestic product data confirmed that growth slowed sharply in the third quarter.
Durable goods orders also fell 0.5% last month after declining 0.4% in September, even as orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, rose 0.6% last month.
The Fed will release minutes from its Nov. 2-3 meeting later on Wednesday, which will be evaluated for any new indications that it may speed up the taper of its bond purchases and hike rates sooner than expected.
The New Zealand dollar fell 1.13% to $0.6870, the lowest since Sept. 30, after the country's central bank raised rates by a quarter of a percentage point to 0.75%, disappointing some traders that had expected it may raise rates by half a percentage point.