The dollar sold off on Tuesday to a four-month low as growing optimism about the global economy boosted investors' risk appetite and curbed demand for the US currency as a safe haven. Stronger-than-expected UK retail sales, housing market and industrial production data pushed sterling up well over 1 percent versus the dollar earlier in the session, while the euro hit a seven-week high above $1.37.
Leading central bankers, including European Central Bank President Jean-Claude Trichet, said on Monday the global economy was at an "inflection point" and could turn the corner soon. In late afternoon trading in New York, the ICE Futures US dollar index, which tracks the greenback against a basket of six currencies, fell 0.6 percent, having hit 81.998, the lowest since early January.
The dollar index is on track for its third consecutive close below the 200-day moving average after breaking below longer-term technical support on Friday. The 200-day moving average now becomes technical resistance. The euro rose earlier to a seven-week high of $1.3706, according to Reuters data. It was last up 0.4 percent at $1.3632, getting a further lift after ECB Governing Council member Axel Weber said there is no need for the central bank to expand its asset purchase program into other sorts of private debt at present.
The euro was firmly on track for a third daily close above the 200-day moving average and second straight week above the 200-week moving average. Against the yen, the euro erased earlier gains to trade 0.6 percent lower at 131.56 yen and the dollar fell 1.1 percent to 96.46 yen after sliding to 96.12 yen, the lowest since late April, according to Reuters data.
With Tuesday's slide, the dollar has declined about 3.5 percent in the past four sessions and is now testing the March and April lows, currency analysts at Brown Brothers Harriman said in a note. A break through the 96.30 yen level would potentially pave the way for a move back toward 91.50 yen, said BBH.
Hopes that the worst of the economic slump and financial crisis was over have put heavy pressure on the dollar recently. The US currency tends to fall when risk appetite rises as investors move money away from safe-haven assets into riskier investments.
Investors' focus now is changing to Wednesday's US retail sales and readings on US producer and consumer prices scheduled for Thursday and Friday, respectively. Earlier on Tuesday, UK data showed retail sales in April rising at their fastest rate in three years, while house prices declined at their slowest pace in 15 months.
Separate reports showed UK industrial and manufacturing output fell less than forecast in March Sterling was up 1 percent at $1.5260, having earlier climbed to $1.5352, the best level since early January. Also on Tuesday data from China showed investment spending surged even though exports fell more steeply than expected.
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