The US dollar strengthened on Tuesday following the strengthening of riskier currencies in the last week's weakening. At the same time the euro was hit after weak German data and the same happened to the Australian dollar after its central bank raised interest rates but gave indications that the increase was the last of the cycle.
The US dollar index which measures the US dollar against six major currencies traded 0.52% firmer at 105.60, driven by a 0.37% decline in the euro and a 0.4% drop in the pound to $1.2288.
Data on Tuesday showing a larger-than-expected drop in German industrial output in September contributed to the euro's weakness, said Fiona Cincotta, senior financial markets analyst at City Index.
"This data comes after the German manufacturing PMI showed a contraction in October and shows that the sector is still under pressure, which acts as a burden on the German economy," he said.
The euro, like most other currencies, strengthened significantly against the US dollar last week when some of the most significant data was Friday's US data that showed job growth slowed in October.
Minneapolis Federal Bank President Neel Kashkari said on Monday that the US central bank may still need to do more to control inflation. Fed Chairman Jerome Powell is scheduled to speak on Wednesday and Friday, with the main focus being on whether he will maintain a more dovish tone after the central bank's policy meeting last week.
The focus was on Australia earlier in the day, where the Federal Bank raised interest rates by 25 basis points to tackle stubborn inflation, as expected, but markets focused on adjusting to the language in the central bank's statement, and concluded that further tightening was not maybe
The US Australian dollar fell 1.2% to $0.641, heading for its biggest percentage decline in a month.
The US dollar strengthened 0.24% against the Japanese yen to 150.43 yen, back above the 150 level that has worried traders in recent weeks as they look for signs of government intervention.
