The dollar extended gains against the other major currencies on Tuesday, rising to fresh four year highs as the euro fell sharply after data showed that the annual rate of inflation in the euro zone slowed this month.
The drop in the euro came after official data showed that the annual rate of euro are inflation fell to a five year low of 0.3% this month from 0.4% in August.EUR/USD hit lows of 1.2590, the weakest since September 2012, and was last down 0.63% to 1.2605.
The slowdown in inflation added to pressure on the European Central Bank to implement additional stimulus measures to stave off the threat of deflation in the region after the bank unexpectedly cut rates to record lows last month.
A separate report showed that the euro zone’s unemployment rate was unchanged at 11.5% in August.
The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was last up 0.46% to 86.15, after rising to peaks of 86.20 earlier, a high last seen in June 2010.
USD/JPY was up 0.11% to 109.60, not far from Monday’s six year peaks of 109.75.
Demand for the dollar continued to be underpinned by expectations that the Federal Reserve is moving closer to hiking interest rates.
A report on Monday showed that U.S. household spending rose at a faster than expected rate in August, indicating that the economic recovery was likely to continue in the current quarter.
Investors were looking ahead to Friday’s U.S. nonfarm payrolls report after August’s report fell short of expectations.
Sterling fell to two week lows against the dollar, with GBP/USD slipping 0.22% to 1.6206.
In the U.K., data on Tuesday showed that the U.K. economy grew 0.9% in the second quarter, up from the preliminary estimate of 0.8%, while the annual rate of growth was unchanged at 3.2%.
Elsewhere, the pound hit two year highs against the single currency, with EUR/GBP down 0.41% to 0.7778.
The Swiss franc was at 14 month lows, with USD/CHF adding 0.59% to trade at 0.9568.
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