The dollar rose to its highest level against the euro in more than three months on Thursday, a day after the Federal Reserve drew attention to the improvement in the US economy and stood by plans to wind down most of its emergency lending by February.
The euro, which tumbled to near $1.43 for the first time since September, also struggled after Standard & Poor's became the second rating agency to downgrade Greece in just over a week, stoking fears about the public finances of the euro zone member. The dollar's gains were tempered by data showing US jobless claims unexpectedly increased last week, although a rise in a regional US factory index kept the greenback near a two-month high against sterling and up 1.5 percent on the Australian dollar.
"The dollar's rally is due to a combination of several factors - the residual effects from the Fed's upbeat statement on the US economy and also the view that monetary policy could be normalised sooner than most people thought," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.
"There are also mounting concerns about Greece and that has weighed on the euro. Greece could be symptomatic of the broader fiscal problems in the euro zone." The euro fell more than 2 cents to $1.4305, according to Reuters data, its lowest level since September 7. It was last at $1.4342, down 1.3 percent on the day and on track for its biggest daily decline in two weeks. The euro also fell against the yen, down 1.1 percent at 129.03 yen.
Light trading volume ahead of the holidays may have contributed to the scope of the dollar's gains, as did investors squaring up their portfolios before year-end.
Assets that have gained over the course of the year such as stocks, commodities and emerging market currencies have come off going into the year-end on profit-taking and this has benefited the dollar, traders said. Against the yen, the dollar rose 0.2 percent to 89.95 yen, its third straight day of gains against the Japanese currency. Analysts said a recent push higher in US bond yields reflected US economic improvement while Japan faces deflation risks.
To be sure, the Fed gave no indication in Wednesday's statement that it was set to raise interest rates from near zero percent, stressing that rates would stay low for an extended period. But it highlighted improvements in the economy, which markets have seen reflected in a slower pace of job losses and improved retail sales data.
Sterling hit a two-month low below $1.61 and was last down 1.1 percent at $1.6155. The dollar also hit a 3-1/2-month peak against a basket of currencies at 77.943. The Norwegian crown fell sharply versus the US dollar, a day after the Norges Bank surprised the market with an interest rate increase to 1.75 percent. The dollar was last at 5.8688 crowns, up 1.9 percent.
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