By Richard Leong
NEW YORK (Reuters) - The euro hit a one-week peak on Tuesday as Germany rang up its best month for exports in a year in August and expectations grew that the European Central Bank may consider scaling back its asset purchases.
The currency's rise this year had lost some momentum in recent days as political concerns, notably Spain's Catalan secessionist movement, have intensified. The euro has fallen more than 3 percent against the dollar over the last month but underlying economic data has shown resilience.
"The focus is shifting away from the political news to the economic data and that is turning to be euro positive, and we should see the currency supported before the ECB meeting," said Viraj Patel, an FX strategist at ING Bank in London.
German exports rose 3.1 percent in August, their strongest month in a year, putting Europe's economic engine on track for a solid 2017.
The ECB is expected to decide on Oct. 26 whether to continue bond purchases next year. Signals from policymakers suggest they will opt for lower volumes but also an extension of the scheme, possibly by six or nine months.
The euro's gains were capped as traders awaited a speech at 1600 GMT from Catalonia's secessionist leader Carles Puigdemont to possibly declare the region's independence from Spain despite Madrid's warnings of counter-measures.
The euro's strength came at the expense of the dollar, which has receded from a 10-week high on tensions between the United States and North Korea over the latter's nuclear weapons program.
A spat between U.S. President Donald Trump and an influential Republican senator raised speculation that the tax overhaul plan Trump introduced would stall, weighing down the greenback.
"Some of the political wrangling over the weekend was seen as detrimental to tax reform," said Bill Northey, chief investment officer at U.S. Bank Wealth Management in Helena, Montana.
An index that tracks the dollar against a basket of currencies (.DXY) was down 0.45 percent at 93.253. It hit a 10-week high of 94.267 on Friday when surprisingly strong U.S. wage data stoked expectations that the Federal Reserve would raise interest rates for a third time in 2017.
(Additional reporting by Saikat Chatterjee in London; Editing by Keith Weir and Meredith Mazzilli)