The dollar held almost a cent above its record low against the euro on Tuesday, winning a respite after heavy selling as European officials warned about a strong euro and investors grew wary ahead of US trade data. Weak confidence figures from Germany underscored concerns about the impact of the dollar's decline on the European economy, briefly hurting the euro. However, analysts said the broad dollar downtrend remained intact even after European Central Bank President Jean-Claude Trichet said recent currency moves were unwelcome.
"These comments are capping the euro's progress but there is no countertrend developing," said Peter Fontaine, currency strategist at KBC in Brussels.
"The euro should be capped under $1.30 for now but if we get any bad news from the US then we can get a new attack on that level. US trade data will be very important."
Worries over the United States' current account and budget deficits have put heavy pressure on the greenback, which hit a nine-year low against a basket of currencies on Monday.
At 1300 GMT the dollar traded steady on the day at $1.2912 per euro, compared with Monday's record low of $1.2985 which followed a five-percent euro/dollar rise over the last month.
The dollar was also steady at 1.1845 Swiss francs, versus Monday's 8-1/2 year low of 1.1753. But it was 0.3 percent up on the day at 105.79 yen, after pulling up from a seven-month low.
Following Trichet's comments on Monday, ECB Governing Council member Guy Quaden told a Belgian newspaper that further appreciation of the euro versus the dollar would be undesirable.
German Economy Minister Wolfgang Clement also said he believed the ECB would take action on the euro's exchange rate if it believed this were necessary.
"Trichet's comments yesterday have made the market wary of pushing the euro higher," said David Mann, foreign exchange strategist at Standard Chartered.
"But the market is still focused on the structural negatives for the dollar and tomorrow's trade data will be important." Meanwhile, Germany's ZEW said the strong euro was already hurting confidence.
Its closely-watched expectations indicator, based on a survey of 304 analysts and institutional investors, fell far more than expected to 13.9 in November, the lowest since December 2002.
That compared with a reading of 31.3 in October and a consensus, based on a Reuters poll of 27 economists, for 30.0.
"The reasons for the clear increase in pessimism are to be found in the expected cooling of the global economy and the recent strong increase in the value of the euro, which will likely hurt German exporters," ZEW said.
Analysts said the dollar could win a reprieve if the central bank indicates it is planning another rate hike in December as this could attract more capital into the United States.
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