NEW YORK The U.S. dollar hit nine-month highs against the euro and rose against a basket of major currencies on Tuesday after strong U.S. housing data bolstered expectations for an earlier-than-expected rate hike from the Federal Reserve.
U.S. housing starts surged 15.7 percent to a seasonally adjusted annual 1.09-million unit pace in July, snapping two straight months of declines, the Commerce Department said on Tuesday. Economists polled by Reuters had expected starts to rise to a 969,000-unit rate last month.
"This pretty much indicates that growth here in the U.S. continues to outperform other parts of the world," said Sireen Harajli, a foreign exchange strategist at Mizuho Corporate Bank in New York. "It's just a matter of time before the Fed will have to tighten monetary policy."
Investors are closely watching for signs of when the U.S. central bank will hike rates from rock-bottom lows, which traders say will boost the dollar by driving investment flows into the United States.
The Labor Department said Tuesday that its Consumer Price Index edged up 0.1 percent last month after increasing 0.3 percent in June. In the 12 months through July, the CPI increased 2.0 percent after advancing 2.1 percent in June. The figures were in line with economists' expectations, according to a Reuters poll.
Analysts said the figures had little positive impact on the dollar and would not likely affect the Fed's outlook for raising rates. The Fed targets 2 percent inflation and it tracks an index that is running even lower than the CPI.
"It once again confirms that we have no sign of inflationary pressure coming through," said Sebastien Galy, currency strategist at Societe Generale in New York.
The euro, which hit a nine-month low against the dollar of $1.3314 in the wake of the U.S. housing starts and CPI data, was last down 0.33 percent against the dollar at $1.3318.
The dollar hit a two-week high against the Japanese yen of 102.91 yen earlier in the session and was last up 0.32 percent against the yen at 102.89 yen. The dollar was last up 0.26 percent against the Swiss franc to trade at 0.9088 franc.
The U.S. dollar index, which measures the dollar against a basket of six major currencies, was last up 0.37 percent at 81.880.
The benchmark 10-year U.S. Treasury note yield was last at 2.40 percent, up slightly from 2.39 percent late Monday.
Analysts said that despite Tuesday's strong housing data that supported a hawkish bent, Wednesday's release of minutes from the Fed's July policy meeting would likely show a continued dovish tone from the U.S. central bank.
"The Fed would prefer to err on the side of caution," said Harajli of Mizuho.
(Reporting by Sam Forgione; Editing by W Simon and Chizu Nomiyama)