By Dion Rabouin
NEW YORK (Reuters) - The dollar rose to a four-month high against a basket of major currencies on Tuesday after the release of data showing U.S. housing starts rose more than expected in June, underpinning a theme of strength in the U.S. economy.
Groundbreaking on U.S. homes surged 4.8 percent to a seasonally adjusted annual pace of 1.19 million units, the Commerce Department said.
After June's jobs report showed U.S. employers added 287,000 jobs, beating expectations by more than 100,000, continued positive data has some investors pricing back in the chances the Federal Reserve will raise U.S. overnight interest rates, analysts said.
Higher interest rates increase a currency's return, making it more attractive to investors.
The dollar index (DXY), which tracks the greenback against six major currencies, rose to 97.126, its highest level since mid-March.
The rise in the dollar index was backed by a sizeable fall in the euro
The dollar also gained ground against the yen
"There’s more enthusiasm about the U.S. economy," said Vassili Serebriakov, FX strategist at Credit Agricole (PA:CAGR) in New York. "It hasn’t really translated into a big increase in Fed tightening expectations but I think markets are starting to think the Fed could be back in the picture before the end of the year."
Fed funds futures rates show investors see almost a 50/50 chance that the U.S. central bank raises rates by its December meeting, according to CME Group's FedWatch tool. Chances of a rate hike were below 20 percent less than a month ago.
The dollar also was boosted by expectations of upcoming central bank easing from the Reserve Bank of Australia and Reserve Bank of New Zealand.
The Australian dollar fell 1.5 percent to an 11-day low of $0.7476, while the New Zealand dollar hit a three-week trough, falling 1.35 percent to 0.7018, as investors ramped up bets that both central banks could ease monetary policy as early as next month.
"There are a lot of individual stories," Serebriakov said. "It’s been kind of a combination of idiosyncratic drivers for currencies as well as the broader dollar story."