The dollar posted steep losses on Tuesday after weaker-than-expected US consumer confidence data stoked concerns hurricanes and soaring oil prices could slow the economy's momentum and the pace of interest rate rises.
Dealers said the dollar's fall accelerated after investors unloaded long currency positions in partly technically-driven trading. Long dollars are effectively bets a currency will appreciate.
The Conference Board's October consumer confidence index fell to 85.0 from September's revised 87.5, and was below analysts' forecasts for 88.1. Hurricanes Katrina and Rita, high gasoline prices and uncertainty over US jobs weighed on consumer sentiment.
"The weaker-than-expected confidence report fed into a breathtaking bout of dollar selling that began in European trading overnight," said Michael Woolfolk, senior currency strategist, at Bank of New York.
"Dollar weakness appeared to be in the cards after market players encountered repeated resistance in pushing euro/dollar below $1.19 in recent days," he added.
The euro rose to session highs around $1.2117 according to Reuters data, before trading back down to $1.2093 in late afternoon trading, up 0.9 percent from late Monday.
Some currency analysts also cited strong demand for euros from central banks making foreign exchange reserve shifts, which had helped the euro climb from the $1.1940 level earlier in the global session.
Against the yen, the dollar fell 0.3 percent to 115.05 yen. The dollar was trading down 0.8 percent against the Swiss franc at 1.2772 francs. Sterling rose 0.8 percent to $1.7834.
The dollar has benefited for much of 2005 from Fed rate hikes and rising yields, which have burnished the appeal of some dollar-denominated financial instruments. But if softer US economic growth caused the Fed pause on raising US interest rates that could weigh on the dollar.
US existing home sales for September were also released on Tuesday, showing a 7.28 million annual rate, above analysts' forecasts of 7.20 million. The data, however, had marginal impact on the dollar. The housing market has been a pillar of US economic growth for over four years. But as the Fed continues to hike interest rates and mortgage rates also start to rise, policy-makers and analysts have warned that the housing market may slow down.
The first sweeping look at US economic momentum through the third quarter will be released on Friday with the US government's first estimate of third-quarter gross domestic output.
Earlier on Tuesday, the euro gained ground against the dollar after stronger-than-expected German business sentiment data fanned talk of interest rate rises in Europe taking place earlier than forecast.
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