By Karen Brettell and Amanda Cooper

NEW YORK/LONDON (Reuters) – The dollar was on track to post its biggest quarterly gain in a year on Friday and gains for the 11th consecutive week as investors priced in the likelihood of a still solid economy and higher rates for longer.

The greenback retraced most earlier losses against a basket of currencies to be only slightly lower on the day, following data that showed that U.S. consumer spending increased in August, but underlying inflation moderated, with the year-on-year rise in prices excluding food and energy slowing to less than 4.0%.

“Prices are higher on a monthly basis, but overall, inflation is moving lower. It’s good news for the market because the Fed is looking at the core rate,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

The dollar has gained on expectations that the U.S. economy will remain more resilient to higher interest rates and oil prices than other economies, after the Federal Reserve last week warned it may hike rates further and is likely to hold them higher for longer.

The dollar index, which tracks the U.S. currency against six others, fell 0.05% to 106.09 on Friday and is track to end the quarter up 3.13% and post an 11th straight weekly rally – its longest such run in nine years. It is down from a 10-month high of 106.84 on Wednesday.

Despite weaker levels on Thursday and Friday some analysts see the greenback as likely to continue to outperform.

“We view this dollar weakness as corrective in nature and is most likely driven by quarter-end rebalancing,” Win Thin, global head of currency strategy at Brown Brothers Harriman in New York, said in a note. “We’re not sure how long this correction lasts but investors should be looking for an opportunity to go long dollars again at cheaper levels.”

Meanwhile, a partial government shutdown is looming, which could affect the release of economic data and potentially dent economic growth.

Hardline Republicans in the U.S. House of Representatives on Friday rejected a bill proposed by their leader to temporarily fund the government, making it all but certain that federal agencies will partially shut down beginning Sunday.

A government shutdown would “undermine” U.S. economic progress by idling key programs for small businesses and children, and could delay major infrastructure improvements, U.S. Treasury Secretary Janet Yellen said on Friday.

The dollar rose 0.06% to 149.41 Japanese yen. It is down from an 11-month high of 149.71 on Wednesday. The greenback is up 3.54% against the yen this quarter, following an 8.66% gain last quarter.

The yen remains in focus as it trades near the 150 level, which is viewed as potentially spurring intervention from Japanese authorities.

Core inflation in Japan’s capital slowed in September for the third straight month mainly on falling fuel costs, data showed on Friday.

The euro gained 0.10% on the day to $1.0578, but is set for its worst quarter against the dollar in a year, with a 3.08% decline. The single currency has bounced from an almost nine-month low of $1.0488 on Wednesday.

Sterling rose 0.04% to $1.2206, having this week hit its lowest since March 17, after data on Friday showed Britain’s economic performance since the start of the COVID-19 pandemic has been stronger than previously thought.

The British currency is on track for a quarterly loss of 3.85% against the U.S. dollar, the worst performance in a year.

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Currency bid prices at 3:00PM (1900 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 106.0900 106.1600 -0.05% 2.512% +106.2400 +105.6500

Euro/Dollar $1.0578 $1.0567 +0.10% -1.29% +$1.0617 +$1.0558

Dollar/Yen 149.4100 149.3000 +0.06% +13.95% +149.5000 +148.5300

Euro/Yen 158.05 157.74 +0.20% +12.65% +158.3300 +157.4600

Dollar/Swiss 0.9153 0.9152 +0.02% -1.01% +0.9163 +0.9093

Sterling/Dollar $1.2206 $1.2202 +0.04% +0.93% +$1.2271 +$1.2181

Dollar/Canadian 1.3554 1.3487 +0.50% +0.04% +1.3576 +1.3417

Aussie/Dollar $0.6440 $0.6428 +0.18% -5.53% +$0.6501 +$0.6421

Euro/Swiss 0.9682 0.9667 +0.16% -2.15% +0.9692 +0.9646

Euro/Sterling 0.8664 0.8659 +0.06% -2.04% +0.8680 +0.8643

NZ $0.6001 $0.5961 +0.69% -5.47% +$0.6049 +$0.5964

Dollar/Dollar

Dollar/Norway 10.6640 10.7230 -0.30% +8.94% +10.7370 +10.5810

Euro/Norway 11.2823 11.3328 -0.45% +7.52% +11.3460 +11.2225

Dollar/Sweden 10.8979 10.9151 -0.04% +4.71% +10.9371 +10.8190

Euro/Sweden 11.5286 11.5336 -0.04% +3.40% +11.5585 +11.4763

(Reporting by Karen Brettell in New York and Amanda Cooper in London; Additional reporting by Stephen Culp in New York; Editing by David Holmes and Nick Zieminski)

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