The euro saw a volatile Tuesday, initially rising after the first move higher in a key German business indicator in eight months before dipping as a European Central Bank member was quoted saying that interest rates may drop.
The euro slipped 0.3% to $1.3167, after earlier hitting a one-week high against the greenback.
European Central Bank Governing Board member Guy Quaden was quoted by a Belgian newspaper, La Libre Belgique, as saying the central bank is "probably" ready to cut interest rates further.
"Quaden is considered relatively less hawkish, though as well in his public comments he is nearly always completely 'on-message', i.e. not deviating at all from the Governing Council's line," noted economists from Barclays Capital.
"In this context we would view his latest comments as sounding particularly downbeat and underlining just how shocked ECB officials have been by the extent so far of the economic collapse."
That took the shine out of data from Germany.
The Ifo Institute's poll of German business climate rose to a stronger-than-forecast 83.0. See related story.
The dollar was mostly steady vs. the Japanese yen and the pound rose 0.4% to $1.4064.
Coming up for the U.S. session, the S&P/Case-Shiller home price index for November is due at 9 a.m. Eastern, with January consumer confidence data coming at 10 a.m.
Strategists at HSBC said currency markets are factoring in sovereign risk -- but not for the dollar.
"It seems to us that the market is sensibly identifying U.K. risk and ascribing risk to a euro break-up scenario. However, it would seem the risk to the U.S. is being ignored as its reserve currency status remains intact," they said.
