LONDON: The dollar was poised to finish the month with its biggest quarterly gain in six years, though it paused for breath on Tuesday and some analysts saw its recent rally running out of steam.
The greenback has gained over 7 percent against a basket of major currencies over the past three months and posted a record-breaking 11 weeks of successive gains on expectations that the US Federal Reserve will raise interest rates well ahead of its counterparts in Japan and the euro zone. Against the euro, the dollar hit a near two-year high of $1.2664 on trading platform EBS on Monday, but the shared currency was steady on Tuesday at $1.2692 as investors waited for euro zone consumer price inflation numbers due at 0900 GMT.
The data is expected to show the inflation rate falling to 0.3 percent in September from 0.4 percent in August - well into the European Central Bank's "danger zone" of below 1 percent, and a far cry from its target of below, but close to, 2 percent.
But numbers released on Monday from Germany - easily the euro zone's largest economy - showed inflation steadying in September, while in Spain, deflation slowed a little.
Some took that as an indication that inflation has managed to stay steady in the euro zone as a whole in September. But Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ, said that even if the data does show inflation staying flat, that would not be enough to prompt a significant move up for the euro, and that markets instead had their eyes on Thursday's European Central Bank policy meeting.
"Only real downward surprises would trigger much of a move on the euro by significantly reinforcing expectations of more easing in the near term," he said.
"Even if the number is higher, it's still well below where the ECB would like it to be, so it's not like it's going to stop the ECB from aggressively easing policy."
DOLLAR RALLY'S ROOM TO RUN
The dollar index last stood at 85.620, not far from an overnight peak of 85.798 - a high not seen since July 2010. Data on Monday showing US consumer spending accelerated in August supported the upbeat outlook for the US economy.
But some analysts cautioned that the dollar's three-month-long rally was at risk of running out of steam for now, particularly against the yen.
"It's really hard to pick a bottom, but it does look to us like it's gone a little too far, and has overshot," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong.
The dollar scaled a fresh six-year high of 109.75 yen on Monday and last traded at 109.30 yen, down about 0.2 percent but up nearly 5 percent for the month.
Other analysts said the dollar's rally still had room to run, as the key US nonfarm payrolls report on Friday was likely to underscore that the US recovery has enough momentum for the Fed to hike interest rates sooner rather than later.
The New Zealand dollar, which has been one of the worst performing major currencies in September, was up 0.2 percent at $0.7779.
It had slipped to a near 14-month low of $0.7708 on Monday after data confirmed the Reserve Bank of New Zealand had intervened to weaken the currency.
Its Australian peer has similarly fared poorly, dropping more than 6 percent this month - a vicious turnaround for a currency that had been trading in a remarkably stable 92-95 cent range - but was also up 0.3 percent on the day at $0.8475.
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