Dollar sits on top of big gains, lower yields prevent further advance

The dollar sat near a 7-month high against a basket of peers early on Wednesday as the euro slid on expectations for the European Central Bank to ease monetary policy in December.

A decline in US Treasury yields amid investor demand for safe-haven assets capped the greenback's advance for the time being.

The dollar index was at 99.666 after touching 99.745 overnight, its highest since mid April.

The greenback's gains came in large part from the euro's weakness. The common currency was steady at $1.0642 after touching a 7-month trough of $1.0630 overnight, hurt by the potential harm the Paris attacks could do the euro zone economy, and which could require yet more easing by the ECB.

"The worst policy mix for a currency is loose monetary and tight fiscal policy. The eurozone is flirting with this combination, even if the region's fiscal straitjacket is not being enforced rigorously. This is part the case for a weaker euro in the quarters ahead," wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

Moreover, Tuesday's data further highlighted the monetary policy divergence theme, with a rise in US inflation reinforcing prospects of the Federal Reserve hiking interest rates next month.

The dollar was little changed at 123.455 yen after nudging up to a 1-week high of 123.490, its advance stalled by the drop in US debt yields.

Treasury yields declined on Tuesday as worries that more terror acts would follow Friday's attacks in Paris spurred demand for safe-havens. 

Elsewhere, a fall in dairy prices knocked the New Zealand dollar lower. The kiwi struggled near a 6-week low of $0.6452.

Data out late on Tuesday showed global dairy prices fell for the third consecutive auction, adding to pressures on New Zealand farmers and to the chance that the central bank could cut interest rates at its meeting next month.