Investing.com - The dollar resumed its rally against a basket of the other major currencies on Tuesday, bolstered by expectations for higher U.S. interest rates, while sterling hit two-week highs against the euro after robust UK factory data.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, advanced 0.83% to 103.22, the highest level since December 28.
The index had declined on Friday as traders took profits in the wake of a late year rally that propelled the greenback to 14-year highs in December.
The greenback has strengthened broadly on the back of expectations for a faster pace of rate hikes from the Federal Reserve and increased fiscal spending under the incoming Trump administration.
Sterling struggled to gain ground against the broadly stronger dollar with GBP/USD trading at 1.2289 despite data showing that UK manufacturing activity rose to a two-and-a-half-year high in December
But the pound jumped to almost two-week highs against the euro following the report, with EUR/GBP down 0.63% to 0.8460.
The UK manufacturing purchasing managers’ index rose to 56.1, the highest level since June 2014, from 53.6 in November. Economists had expected the index to decline to decline to 53.1.
The data indicated that UK factories ended 2016 on a strong note despite June’s Brexit vote.
The euro fell to one-week lows against the dollar, with EUR/USD down 0.43% at 1.0409.
The dollar extended gains against the yen, with USD/JPY adding 0.53% to trade at 118.12, not far from the 10-month highs of 118.65 set on December 15.
The Australian dollar remained supported, with AUD/USD up 0.35% to 0.7211 after data showing that China's factory activity accelerated in December, boosted by stronger domestic demand.
The Caixin manufacturing PMI rose to 51.9 from 50.9 in November, well above forecasts for a reading of 50.7.