The U.S. dollar was slightly lower versus major rivals Tuesday, dipping versus the European single currency after a stronger-than-expected rise in a closely-watched gauge of German investor sentiment.
The Mannheim-based Center for European Economic Research, or ZEW, said its monthly sentiment gauge rose to 13 in April from a reading of -3.5, for the first positive reading since July 2007. See full story.
The euro rebounded to trade at $1.2944 versus the dollar, up from $1.2924 in North American trade late Monday.
The single currency had tumbled sharply versus the dollar Monday on weekend remarks by European Central Bank President Jean-Claude Trichet signaling that more aggressive unconventional monetary easing measures were in the offing.
While the ZEW data provided a temporary lift, the euro continues to hang close to the $1.2950 level versus the dollar, noted Daragh Maher, a currency strategist at Calyon Bank.
The ZEW figures tend to have only a fleeting impact on currency markets, he said. More attention is usually paid to the monthly Ifo Institute survey, which is set for release Friday.
The dollar had maintained a strong tone in Asian activity, holding gains scored the previous day as U.S. equity markets tumbled 4% on renewed worries about the health of the banking sector.
The dollar index , which tracks the greenback against a trade-weighted basket of rival currencies, traded at 86.477, down from 86.647 late Monday.
The dollar rose versus the Japanese currency to trade at 98.06 yen, up from 97.92 yen.
"The U.S. dollar and Japanese yen continue to perform well in bouts of risk aversion," wrote strategists at Bank of Scotland. "The losers have been commodity currencies, as growth expectations are re-priced lower" and the British pound.
The dollar has also maintained a largely inverse relationship with equity markets, rising when shares slip. Since the S&P 500 started climbing off its March 6 low, the U.S. dollar index had lost nearly 3%.
U.S. stock index futures were slightly lower. European shares lost ground. Read Indications. See Europe Markets.
But the relationship isn't as strong as it has been in the past, strategists note. In particular, the dollar has tended to prove more resilient when equities rise, gaining ground last week as a round of better-than-expected earnings from financial firms rallied equities.
The Swedish krona was stronger after the nation's central bank cut its key lending rate from 1% to 0.5%. The move wasn't out of line with expectations, but a "sizeable minority" had seen scope for a more aggressive cut and a move to quantitative easing, Maher said.
The U.S. currency fell 0.9%, with the krona trading at 8.6004 per dollar. The euro fell 0.7%, with the krona fetching 11.145 per euro.
Economists at Capital Economics said the rate cut is unlikely to be the final word. The recession is likely to be more prolonged than the central bank expects, with growth "stagnant at best" in 2010, they said, in a research note.
"Accordingly, we expect the bank to eventually adopt unconventional policy measures to help kick-start the economy," they wrote.
The British pound rose to $1.4546 versus the dollar, up slightly from $1.4535 late Monday.
"The correlation between [the pound versus the dollar] and bank equities is high, due to the large financial sector in the U.K., and this leaves the currency pair vulnerable to a deeper correction," wrote the Bank of Scotland strategists.
Annual consumer price inflation in Britain slowed to 2.9% in March from a pace of 3.2% in February, the Office for National Statistics reported Tuesday. A Dow Jones Newswires survey of economists had produced a consensus forecast for a slowdown to 2.7%.
Maher said trade is likely to remain subdued until the presentation Wednesday of Britain's annual budget is out of the way, although budgets rarely have a major impact by themselves on sterling.
