On Wednesday, the US dollar continued its gains from the previous day, and indirectly pressured the Australian dollar which failed to hold on to gains after surprising inflation data raised expectations for a series of interest rate hikes.
Attention also focused on the Canadian currency, with the US dollar strengthening by 0.2% against the Canadian dollar at C$1.367, testing a six-month high ahead of a Bank of Canada meeting expected to keep interest rates unchanged.
The US dollar index, which measures the US dollar's performance against six major currencies rose 0.2% to 106.42, after rising 0.65% on Tuesday, when the S&P Global US Composite Purchasing Managers' Index initially rose to its highest level since July.
This may give the US Federal Reserve more room to keep interest rates high, and is in contrast to weak European PMI data released on the same day. Despite the opposite signal, morale among German businesses rose slightly in October, according to a survey released on Wednesday.
The euro slipped 0.16% to $1.0570 and the pound slipped 0.26% to $1.2133.
Australia's Consumer Price Index rose by 1.2% in the third quarter, beating market expectations of 1.1% and up from a 0.8% increase in the previous quarter.
This has traders narrowing the possibility of a rate hike by the Reserve Bank of Australia (RBA) next month, which will come after four rate delays.
The Australian dollar was unable to hold on to those early gains and eventually slipped 0.2% to $0.634.
"What's interesting about Australia is that many other central banks are in a similar position. They have held off on a rate hike, the market was hoping that would be the case, but everyone was on edge, hoping inflation would stay under control, and in Australia's case it hasn't,” said Jane Foley, Head of Foreign Exchange Strategy at Rabobank. .
He said the tight labor market and high oil prices raised concerns that inflation might be difficult to control.
A strong US dollar kept the yen near the closely watched 150 level, with the Japanese currency last trading at 149.92 against the US dollar, and traders on alert for signs of intervention by Japanese authorities.
Pressure is mounting on the Bank of Japan to change controls on bond yields as global interest rates rise. A rise to the existing bond yield limit set just three months ago is being discussed as a possibility ahead of next week's policy meeting, according to sources reported by Reuters earlier this week.
Market participants are concerned that the Japanese authorities will intervene to support the currency, which means the US dollar's brief move above 150 is not sustained.
