The dollar held near a two-month high against the euro today after data showed the US was attracting more than enough foreign capital to fund its huge current account deficit.
The spectre of an ongoing rise in US interest rates fuelled hopes that such foreign fund inflows would gain momentum as the dollar's yield advantage over the euro increases.
Dollar bulls say that the pace at which the Federal Reserve raises rates could accelerate if US consumer price data due this afternoon shows any sign of rising inflation.
At 7:10 a.m., the dollar traded at $1.3020 per euro, flat from late New York levels and well within range of a two-month high of $1.2995 hit in Europe on Tuesday.
The dollar had inched up in late US trading after data showed that foreign investors pumped $81 billion into US assets in November, hitting a five-month high and far exceeding market forecasts for $55 billion.
This was more than enough foreign investment to cover the record $60.3 billion trade gap notched the same month, easing concerns about the US trade imbalances - the main culprit behind the dollar's weakness in recent years.
The purchasing of US bonds by foreign investors could increase in the future as the Fed looks set to raise US rates by 0.25 percentage point at its meetings in February and March, and possibly in May, from 2.25 per cent at present.