Dollar falls to 11-day low versus euro

The dollar dropped to an 11-day low against the euro on Tuesday, on the defensive as the market waited for US December capital flows data, an indicator of foreign financing of the nation's large current account deficit. The closely-watched figures due at 1400 GMT are a good measure of foreign appetite for US assets. Last month, the Treasury International Capital (TIC) report showed an unexpectedly high $81 billion November inflow, boosting the dollar.
"A lot of the surge in the dollar at the beginning of the year was due to short covering and not so much down to a general shift in fundamentals. The dollar is once again coming under downward pressure," said Michael Klawitter, senior currency strategist at West LB in Duesseldorf.
Klawitter said that the flow data could hold more downside risk for the dollar. "Strong TIC data probably would provide less support to the dollar than weak TIC data would do damage," he said.
The dollar hit its lowest level against euro since February 4 at $1.2997 before improving to $1.2974 by 1220 GMT.
The dollar fell almost a third of a percent against the Swiss franc to trade around 1.1952 francs and slipped 0.2 percent against the yen to 104.95 yen.
Federal Reserve chairman Alan Greenspan begins twice-yearly testimony to congressional committees on Wednesday, and markets will be eager to see whether he repeats upbeat comments made in London this month about the outlook for the current account.
SEB Merchant Banking in a research report recommended investors to avoid long dollar bets given the uncertainty surrounding Greenspan's testimony.
It advised investors to buy Swiss franc against the euro as solid technicals and potential Swiss interest rate hike should support the Swiss currency.
US retail sales data is due at 1330 GMT, with economists in a Reuters survey forecasting a rise of 0.4 percent.
Earlier this month, the dollar hit a three-month high versus the euro as investors shifted their attention to an upbeat growth picture in the United States and prospects for higher interest rates, and away from structural problems.
But many analysts believed this rally was only a correction in the dollar's long-term downtrend, which is fuelled by concerns that the United States may fail to plug the deficit with foreign investment inflows.