NEW YORK: The dollar surged on Tuesday after data showed inflation in the euro zone barely rose in September, with the US currency on track for its biggest quarterly gain in six years, while world stock markets headed to their largest quarterly drop in more than two years.
The dollar hit to a four-year high against a basket of major currencies and a two-year high against the euro after consumer prices in the euro zone rose 0.3 percent year-on-year, slowing from 0.4 percent annual increases in August and July.
The inflation estimate put new pressure on European Central Bank President Mario Draghi to make clear when the ECB meets on Thursday that he is ready to take more stimulative action.
Draghi “may have used up a bunch of his capital," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. “Once he actually does something and you can see Europeans are clearly exiting the European market and putting it into US dollars," he said.
The dollar index of major currencies rose 0.4 percent to 85.901. The index has gained almost 8 percent over the last three months, the biggest quarterly gain since 2008 and a record-breaking 11 successive weeks of gains.
Many analysts believe it is the beginning of a potentially seismic shift in the financial status quo, based on expectations the US economy will outgrow Japan and the euro zone for years, pushing US interest rates higher.
The euro sank below $1.26 for the first time since September 2012, hitting a low of $1.25715 on trading platform EBS, an almost 1 percent drop. The euro later pared losses, to trade down 0.45 percent at $1.2627.
MSCI's all-country world stock index of 45 countries was on course for a drop of almost 3 percent in September and its biggest quarterly fall since the second quarter of 2012, when the euro zone's debt crisis peaked.
The index was down 0.02 percent while the FTSEurofirst 300 index of top European shares was last up 0.55 percent.
The Dow Jones industrial average was up 33.65 points, or 0.20 percent, at 17,104.87. The Standard & Poor's 500 Index was up 3.60 points, or 0.18 percent, at 1,981.40. The Nasdaq Composite Index was up 5.32 points, or 0.12 percent, at 4,511.17.
The 10-year US Treasury note was unchanged, yielding 2.4915 percent.
Brent oil slipped below $97 a barrel, hit by dollar strength and ample supply, and was heading for its deepest quarterly drop in more than two years.
Brent for November delivery was down 92 cents at $96.28 a barrel. It has lost nearly 14 percent in the third quarter, its biggest quarterly drop since April-June 2012.
US crude was down $1.26 at $93.31 a barrel and was also on track for its biggest quarterly fall since the second quarter of 2012.