Dollar strengthened against a basket of currencies except the Japanese yen on Tuesday as U.S. stocks tumbled due to investors becoming more risk-conservative ahead of the earnings season that gets under way this week. In addition, a member of the Obama administration’s economic advisory panel said that the U.S. should plan to possibly provide a second round of government stimulus to revive the economy.

Euro dropped to as low as 1.3903 against the dollar in European morning as investors were concerned that the global economic recovery will be slow. However, the single currency rebounded strongly from there as Germany posted much higher-than-expected factory orders (4.4% in May versus economist forecast of 0.5%). This strong German manufacturing figure suggested that the country’s economy is continuing to improve. Cross buying in euro also helped with eur/gbp rallying fm 0.8584 to 0.8657 while eur/jpy rose to as high as 133.93 before erasing all gains in U.S. session. European Central Bank Governing Council member Axel Weber said there was no need at present for the central bank to bypass the banking channel and buy up corporate bonds and indicated there was no credit crunch in Germany at the moment. Euro tumbled from 1.4051 to 1.3911 in late U.S. session on safe-haven buying. DJI sank 161.27 points or 1.94%, Nasdaq closed down 41.23 points or 2.31% and S&P dropped 17.69 points or 1.97%.

The British pound slipped against the U.S. currency after the British Chambers of Commerce suggested that Bank of England expand its asset-purchase program to jump-start the economy. Investors treated this as a piece of sterling-negative news as printing money is a way of depreciating of the currency. Sterling was also pressured by a report that showed U.K. industrial production unexpectedly fell in May (-0.6% compared to economist forecast of 0.2%) and manufacturing production in May also came in worse than expected (-0.5% against consensus expectation of 0.2%). In New York afternoon, the pound extended its decline to as low as 1.6117 against the dollar.

The Japanese yen strengthened against high-yielding currencies on Tuesday on risk aversion. Euro, aussie and sterling tumbled against the yen from 133.93 to 131.83, 76.60 to 74.81 and 155.35 to 152.75 respectively in late New York afternoon.

Earlier in the day, Reserve Bank of Australia left interest rates unchanged at 3.00% as anticipated. The central bank's accompanying statement said the outlook for inflation allows scope for further easing and that economic conditions in Australia are not as weak as expected a few months ago. However, in New York late afternoon, aussie dropped sharply to 0.7891 versus the greenback on dollar’s board-based strength.

Data to be released on Wednesday includes Japan current account, economic watch survey, machine orders, Australia Westpac consumer confidence, Switzerland unemployment rate, U.K. nationwide consumer confidence, house price, eurozone GDP and German industrial production.