NEW YORK: The dollar rose to a 16-month high on Tuesday after data showed US consumers looked past rising prices and drove retail sales higher than expected last month, while the euro slumped amid growth concerns and a surge in COVID-19 cases.

US retail sales rose 1.7% in October, topping consensus expectations of a 1.4% rise, likely as Americans started their holiday shopping early to avoid empty shelves amid shortages of some goods as the ongoing pandemic squeezes supply chains.

“The data reveals that consumers have continued spending and spending well despite rising prices and deteriorating consumer morale,” said Fiona Cincotta, senior financial markets analyst at City Index.

“This will be an encouraging sign for the Fed,” she said.

At 9:30 a.m. Eastern time, the dollar index was up 0.218% at 95.738, having earlier touched 95.824, its highest since July 2020.

The dollar has rallied since US inflation data last week showed consumer prices surged to their highest rate since 1990, fueling speculation that the Federal Reserve may raise interest rates sooner than expected.

The euro extended losses versus the dollar, last down 0.22% at $1.13425. Earlier in the session, the single currency dropped to $1.1330, its weakest since July 2020.

The euro’s decline is due in part to the disappointing performance of the euro zone economy relative to the United States, which has been surprising on the upside more than the euro zone has been, said Marshall Gittler, head of investment research at BDSwiss Holding Ltd.

COVID-19 is also surging again in Europe, which causing some countries to contemplate lockdowns again, whereas the spread of the virus seems to have stabilized for now in the United States, he said.

“As a result, the market is getting increasingly nervous about the euro,” Gittler said.

The euro dropped on Monday after European Central Bank President Christine Lagarde said that tightening monetary policy now to rein in inflation could choke off the euro zone’s recovery, comments which were viewed as pushing back on calls and market bets for tighter policy.