The dollar edged back toward a seven-month peak against a basket of major currencies on Tuesday, bolstered by rising expectations that the US Federal Reserve is gearing up to raise interest rates next month.

The dollar index added about 0.1 per cent to 99.035, moving back toward Friday's peak of 99.345, a high not seen since mid-April. Against the yen, the dollar was buying 123.16 yen, steady on the day and not far from the previous session's 2-1/2-month high of 123.60.

The euro traded at $1.0746, down about 1 per cent and moving back towards Friday's low of $1.0704.

Against the yen, the common currency stood at 132.20 yen, drifting off a six-month low of 131.45 plumbed overnight.

Pressuring the euro, four governing council members said a consensus is forming at the European Central Bank to take one of its benchmark interest rates deeper into negative territory in December.

"That's what many people are citing as the reason the euro got crushed, in comparison to other currencies," said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.

"The US is out in front on its own, and everyone else is heading the other way. In that case, positioning becomes key, if the interest-rate story is going to be centre-stage," he said.

In sharp contrast with the ECB, the Fed is now considered very likely in mid-December to tighten US monetary policy for the first time in nearly a decade, following Friday's robust employment data.

Even Eric Rosengren, the dovish president of the Boston Fed, pointed to December as an appropriate time to begin raising rates.

In a speech on Monday, Rosengren said it was now reasonable to ask whether the current level of near-zero rates was necessary given he expects the economy to continue expanding at above its potential rate of around 2 per cent.

Analysts at BNP Paribas, in a note to clients, wrote: "We think USD gains have further to run, but with the Fed also sensitive to headwinds created by currency strength, we think gains are likely to be limited in scope."

Commodity currencies also regained their footing after Friday's slide against the greenback. The Australian dollar stood at $0.7049, recovering from a one-month trough of $0.7016. Its kiwi peer was at $0.6528, off a one-month low of $0.6499.

The Aussie largely shrugged off downbeat Chinese price data that showed intensifying deflationary pressure. The October consumer price index (CPI) cooled more than expected, rising 1.3 per cent from a year earlier.

Chinese industrial output and retail sales figures are scheduled to be released on Wednesday.

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