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By Bloomberg

Dollar bulls hungry for more gains after the currency reached a three-month high may need to be patient.

While the options prices suggest the dollar will strengthen against every major currency except the yen in a month, traders preparing for a quieter August have pushed volatility versus the euro to its lowest level since March. The summer lull they foresee may keep currency moves limited and moderate the pace of the dollar’s appreciation.

The dollar weakened on Tuesday for the first time in five days versus the single currency, and an index of the greenback retreated from a three-month high. Federal Reserve signals that it will raise interest rates in 2015, diverging from central banks in much of the world, underscore demand for the dollar. That contrasts particularly with Europe, where the region’s central bank is engaged in an unprecedented bond-buying program.

“The dollar has been doing very well over the past days and weeks, hence it could even be some profit-taking,” Petr Krpata, a foreign-exchange strategist at ING Groep NV in London, said of Tuesday’s dollar depreciation. “The Fed moving to a rate hike and the European Central Bank reiterating that it will complete the QE program means very clear downside prospects to euro-dollar.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 of its major peers, fell 0.1 percent to 1,209.23 as of 7:04 a.m. in New York, after reaching 1,212.02, a level not seen since April 13.

The dollar weakened 0.3 percent to $1.0862 per euro, after reaching an almost three-month high of $1.0809 on Monday. The U.S. currency has gained the most among 10 developed-nation peers over the past month, Bloomberg Correlation-Weighted Indexes show.

Latin America

Meanwhile, an index of Latin American currencies dropped to a record low against the greenback on Monday as a decline in commodity prices hurt growth expectations for petroleum- exporting nations. The same day Mexico’s peso dropped to 16 per dollar for the first time since its 1993 revaluation.

In an interview on Fox Business Network on Monday, St. Louis Fed President James Bullard said there’s a more than 50-50 chance the central bank will raise interest rates in September.

“U.S. rates will indeed move higher this year, as early as September,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “That’s helping the dollar. For Latin America in general, you have a situation where terms of trade declined significantly due to commodity price falls. So LatAm currencies are being hit from two fronts.”

The Bloomberg JPMorgan Latin America Currency Index fell to 72.75 on Monday, the lowest since records began in 2004.

Yen Slump

The yen slumped to a one-month low versus the dollar after minutes released Tuesday from the Bank of Japan’s policy meeting last month showed some members expected the nation’s recovery to slow temporarily in the second quarter. The currency slipped 0.1 percent to 124.38 per dollar and touched 124.48, the weakest since June 10.

“The expectation is that, sooner or later, the Fed will be hiking before the other major central banks,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. “Gradual dollar strength is taking place and that trend will continue.”