The dollar rose against major currencies on Friday as a slew of economic data eased investors' concerns about a sharp slowdown in the U.S. economy.
The U.S. currency was bolstered by a better-than-expected reading on manufacturing activity in the Midwest as well as data showing still buoyant U.S. consumer sentiment in September.
But a much-anticipated report on consumer prices had little impact on foreign exchange trading, with inflation minus food and energy edging up a modest 0.2 percent in August but year-on-year gains hitting an 11-year high. For more, see [nN28221864]
Net-net, the data has been modestly comforting, especially in terms of the growth data, and even the inflation reports were not bad, said Alan Ruskin, chief international strategist at RBS Greenwich Capital Markets in Greenwich, Connecticut.
In late afternoon trading, the euro was down 0.2 percent at $1.2680, off a session trough of $1.2640. Sterling was down 0.3 percent at $1.8717, near a two-week low.
The dollar last traded up 0.3 percent at 118.11 yen, while the euro was at 149.80 yen, up 0.2 percent.
Friday's price movement left the dollar on track to end the third quarter near the upper end of well-worn ranges against the major currencies.
That confounded investors who predicted that slower U.S. growth, a cooling housing market and the Federal Reserve's decision to keep interest rates at 5.25 percent while euro zone rates look set to keep climbing would push the dollar lower.
But the euro has remained in a tight $1.2456-$1.2939 band in the third quarter, never testing the year's high of $1.2979 touched in June.
The dollar index, which measures the U.S. currency against a basket of major currencies, hit 85.98, a nearly two-month peak.
There's a lot of confusion about what to focus on, said Brian Garvey, senior strategist at State Street Global Markets in Boston.
By and large, we've seen weak data this month, notably in housing, and a sharp drop in U.S. bond yields, yet the dollar is near a two-month high as we end the month, he added.
Among major currencies, the New Zealand dollar logged the best quarterly performance against the dollar, gaining 7.4 percent since July 1.
YEN'S RIDE, POOLE ON RATES
The dollar advanced 3.2 percent against the yen, its best quarter against the Japanese currency since the fourth quarter of 2005, while it gained 2.5 percent on the Swiss franc.
Both the yen and Swissie have suffered from carry trades in which investors borrow them cheaply then sell them to buy higher-yielding currencies.
A potentially dollar-damaging comment by St. Louis Fed President William Poole failed to stir the market, traders said.
Poole said on Friday that if both growth and price pressures were sufficiently weak, he would back a reduction in U.S. interest rates.
But the dollar's rivals - particularly the euro, failed to get any traction from the comment - and some strategists said a 2.5 percent gain in year-over-year core consumer prices kept the possibility of more Fed rate hikes on the table.
The yen initially jumped on news earlier that China would issue new foreign exchange regulations, which markets took to mean that Beijing may allow faster appreciation of the yuan.
The yen is traded as a proxy for the tightly-controlled Chinese currency.
But China's foreign exchange regulator did not mention any new policy on the yuan and the yen gave back its gains.
(Additional reporting by Nick Olivari)