NEW YORK: The dollar dipped on Monday after data showed production at US factories fell by the most in seven months in September, erasing earlier gains on expectations that the Federal Reserve may be closer to raising interest rates than previously expected.

US manufacturing output were hurt as an ongoing global shortage of semiconductors depressed motor vehicle output, providing further evidence that supply constraints were hampering economic growth.

Supply disruptions are adding to concerns about high inflation and adding to expectations that the US central bank will need to act to stamp out price increases.

"Prospects for global central banks to be more aggressive to counter growing inflation fears may put the USD under some pressure, though the Fed in turn may act sooner than previously expected, supportive of the dollar," said Ronald Simpson, managing director, global currency analysis, at Action Economics.

The dollar fell 0.02pc to 93.95 against a basket of currencies. It had earlier reached 94.17 as US Treasury yields increased.

Dollar holds firm as inflation tugs yields higher

The New Zealand dollar gained after data showed that the country faced its highest price pressures in a decade.

It was last at $0.7081, after earlier rising to a one-month high of $0.7105.

Sterling briefly hit a 20-month high against the euro after Bank of England Governor Andrew Bailey sent a fresh signal that the central bank was gearing up to raise interest rates as inflation risks mount.

The euro was last up 0.24pc against the British pound at 0.8455, after earlier falling as low as 0.8427.

The euro rose 0.11pc to $1.1610, after earlier dropping to $1.1570. It has fallen 5pc this year.

Analysts at Bank of America noted on Monday that commodity-linked currencies, including the Norwegian krone and the Canadian and Australian dollars, had been the best performers since the summer as energy prices rise, while the euro and the yen had been the worst.

The yen was close to a new three-year low, with the dollar last up 0.01pc at 114.27 yen, close to Friday's 114.46 level that was last hit in October 2018.

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