The dollar held steady versus other major currencies as risk averse traders responded to further evidence the recent bear market stock rally has run aground. Alcoa is expected to kick off corporate earnings season with a thud later today, further driving traders into the relative safety of the greenback.
Dismal economic data from the euro area continued to fuel speculation that policymakers across the Atlantic will be forced to join other central banks in lowering interest rates near zero.
The dollar jumped to a weekly high versus the euro, hitting 1.3226 by mid-morning before leveling off. With the advance, the dollar has all but wiped out last week's losses, which were driven by gains in equities.
A final report from the Eurostat showed that economic contraction in the euro area in the fourth quarter was deeper than initially estimated.
Eurozone gross domestic product, or GDP, contracted by a record 1.6% quarter-on-quarter in the final three months of 2008. The pace of decline was slightly up from the previously estimated fall of 1.5%. GDP fell 0.3% each in the previous two quarters.
In the UK, manufacturing output in three months to February recorded the largest decrease since the records began in 1968. UK's Office for National Statistics reported 6.5% decline in UK manufacturing output during three months to February compared with the three months to November 2008.
Still, the dollar came under modest pressure in mid-day dealing against the sterling, giving backs its early gains. The buck was at 1.4720 approaching 3 pm ET, staying withing a few cents of last week's 2-month low near 1.4950.
Meanwhile, the dollar remained above the 100 mark versus the yen on Tuesday. The yen was strong against most majors, but the dollar managed to hold near yesterday's multi-month peak of 101.43.
Tuesday, the Bank of Japan retained its key interest rate, but it decided to expand the range of eligible collateral in order to make funds easily available.
The Policy Board of the central bank unanimously voted to hold the uncollateralized overnight call rate at 0.1%. The decision came in line with economists' expectations. The previous change in interest rates was a 20 basis point cut implemented in December 2008.
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