The greenback declined against a basket of currencies especially versus yen on Tuesday as growing hopes for a global economic recovery encouraged investors to shift funds to riskier assets from the dollar. The dollar index, U.S. currency's performance against six other major currencies, was down 0.4 percent at 77.203.

The single currency rose to intra-day high of 1.4485 at European opening on Tuesday but retreated quickly from there despite solid unemployment data from Germany. The unemployment fell unexpectedly by 3,000 in December (forecast was an increase of 5,000) to 3.421 million. German unemployment rate came in as expected at 8.1%. Euro continued to move lower after the data and price hit intra-day low of 1.4346 in NY afternoon before stabilizing.

Similar to euro, cable bounced briefly to intra-day high of 1.6154 at European opening before tumbling to 1.5989. The weaker-than-expected U.K. PMI was part of the reason for the selloff. The index only to 47.1 in December (forecast was 47.4) from 47.0 in November. The cable continued to be soft in NY session in part due to active cross-selling in sterling (eur/gbp rose from 0.8946 to 0.9016 and gbp/jpy fell from 149.15 to 146.16) and price reached an intra-day low of 1.5965 in NY afternoon before staging a minor rebound.

Despite falling sharply to intra-day low of 91.25 against the yen in NY morning due to active buying of yen by Japanese exporters and hedge funds earlier in Asia, the greenback rebounded after the release of mixed U.S. data. U.S. factory orders rose by 1.1% in November (forecast was 0.5%) with upwardly revised 0.8% increase in October, however, U.S. pending homes sales dropped by 16% versus economists' forecast of -2%. In other news, Finance Minister Hiroshida Fujii resigned earlier in today's European session due to health reasons.

Data to be released on Wednesday include Germany services PMI, EU services PMI, U.K PMI service, EU industrial orders, PPI, U.S. ADP unemployment, ISM non-manufacturing.