The U.S. dollar on Tuesday traded firmly higher against its main rivals, extending gains from the last three months of 2016 after stronger-than-expected manufacturing data added to the buck’s uptrend.

The ICE dollar index DXY, +0.38% jumped 1% to 103.27 as the greenback rose against most other major currencies. The gauge is touching levels last seen in 2002, according to FactSet data.

The ISM manufacturing index rose to 54.7% in ​December. A reading of 50 or greater points to expansion. Meanwhile, construction spending rose 0.9%, with both reports coming in stronger than forecast by economists polled by MarketWatch.

“The dollar rally is being driven by enormous investor expectations that the relatively strong U.S. economy will accelerate even further under the leadership of [President-elect] Donald Trump who is expected to stoke growth through fiscal stimulus and deregulation,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management. The dollar has risen 4.6% over the last quarter on prospects of rising inflation and interest rates.

Indeed, the dollar index ended 3.6% higher in 2016, marking its fourth straight year of gains.

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The dollar traded sideways late December, but gained 4.6% over the fourth quarter on expectations that the Federal Reserve would raise interest rates at a more rapid clip than had previously been expected. The market is pricing in two rate increases in 2017, according to CME Group data, while the Fed’s projection of rate increases this year, its so-called dot plot, implies three moves, an increase from its earlier projection in September of two rate increases this year.

“The last two weeks in December were clearly a pause in the dollar rally and investors continue to bet on a stronger dollar in 2017,” said Neil Mellor, chief currency strategist at BNY Mellon.

“Mr. Trump’s policies will take months to be put into effect, but in the meantime the markets will need to key off the U.S. data. Given the very high expectations, the possibility of disappointment is high,” Schlossberg added.

Meanwhile, the euro EURUSD, -0.60% fell to its lowest level in nearly 14 years, but regained footing in late trade. The shared currency was changing hands at $1.0407 late Tuesday in New York, compared with $1.0467 late Monday in New York.

Some analysts expect more potential downside risk for the euro in 2017, which could pull it down to parity with the greenback.

“Over the past decade China has diversified its foreign holdings away from the dollar and into the euro. The recent devaluation of the yuan forced them to sell their dollars, but soon, they might start selling their euros, further putting pressure on the single currency,” said Mellor.

Mellor noted that the weakness in the euro and the yen is a positive for their respective central banks.

“The ECB and [Bank of Japan] are only happy to see the dollar strengthen to allow their economies to recover. But it has a negative impact on emerging markets and the Fed will be very careful not to let the dollar strengthen too much,” Mellor said. “One of the risks for the dollar is the Fed tightening too soon too much,” he said.

The yen USDJPY, +0.11% also slid, with the dollar fetching ¥117.71 late Tuesday in New York, up from ¥117.41 on Monday.

In other currencies, the pound jumped after the U.K. manufacturing purchasing managers index for December soared to a 30-month high. Sterling GBPEUR, +0.15% bought €1.1757, up from €1.1739, its strongest level against the euro since Dec. 22, according to FactSet.

The pound GBPUSD, -0.43% changed hands at $1.2235 late Tuesday in New York, compared with $1.2287 on Monday.

Among emerging-market currencies, the Russian ruble USDRUB, +0.24% strengthened as much as 1.3% against the dollar, largely thanks to a jump in oil prices. But as oil turned its 2.5% gain into 2.7% decline, the ruble gave up gains, with the dollar fetching 60.9875 rubles late Tuesday in New York, down from 61.2465.

And the Turkish lira USDTRY, -0.15% plunged to new lows after a terrorist attack on a night club on New Year’s Eve as well as rising inflation. Official data showed inflation rose 8.5% in December, up from 7% in November. The dollar bought 3.5960 lira, up from 3.5436 a day earlier.