The dollar kept its grip on a two-month high versus the euro on Thursday after upbeat economic data reaffirmed the view that likely future U.S. interest rate rises would lure more funds to the United States.
Consumer price data landed in line with forecasts, supporting investor expectations that the Federal Reserve would gradually raise its benchmark interest rate to at least three percent by mid-year, from 2.25 percent now.
Housing starts data and weekly jobless claims figures were surprisingly strong, although the numbers did not buoy the dollar in U.S. trade as position adjustments swayed the market.
"On the whole the dollar seems to have reversed last year's fall," said Yoshiharu Yanagisawa, vice president of forex at State Street Bank. "But I think the dollar needs more consolidation in the near future."
At 10:20 p.m. EST Wednesday, the euro bought around $1.3010, flat from late U.S. levels but still near a two-month low of $1.2964 struck on Wednesday.
A sharp drop in energy prices helped to pull U.S. consumer prices down 0.1 percent last month. But the core consumer price index, which strips out volatile food and energy, rose 0.2 percent -- in line with market expectations.
Separately, a U.S. Commerce Department report showed housing starts shot up 10.9 percent in December, their biggest jump in more than seven years.
Initial claims for jobless aid plummeted 48,000 last week, the biggest drop in more than three years.

BRINGING HOME DOLLARS
Some traders said the dollar was helped by speculation that U.S. multinational companies may repatriate their funds to take advantage of a tax break.
The break allows companies to return earnings from foreign subsidiaries to the United States at a tax rate of 5.25% instead of the normal 35 percent top corporate rate.
Drugmaker Johnson & Johnson said on Wednesday that it would repatriate about $11 billion in past earnings, while rival Pfizer Inc. said it was considering repatriating up to $38 billion.
"Because of the tax system, U.S. companies seem to be repatriating funds that would otherwise have been sent back in the October-December quarter," said Takehiko Jimbo, forex manager at Mitsubishi Trust and Banking.
"It's clearly supporting the dollar."
The yen bounced back against the dollar, however, supported by speculation that Asian currencies will rise if China revalues its yuan.
The dollar slipped to around 102.60 yen after it failed to break through 103 yen, a strong resistance in the last three days. It fetched 102.75 yen in late U.S. trade.
Traders said the yen was bought as a proxy for the yuan, as China's capital controls make speculative buying in the yuan difficult.
"Even if you think the yuan will go up, you can't buy the yuan. So you will probably need to buy the yen instead," said Takashi Toyahara, forex manager at Nomura Securities.
Chinese forex policy has become a handy theme in the market ahead of the Group of Seven financial chiefs' meeting in early February. G7 nations are expected to press for China to revalue the yuan, which is currently pegged to the dollar.
A report by New York-based consultants Medley Global Advisors that China could revalue the yuan by as much as 5 percent against the dollar any time after the Chinese New Year in mid-February rekindled such expectations. (Reuters)