NEW YORK (AFP) — The dollar weakened on foreign exchange markets Tuesday as a gauge that tracks US consumer confidence dived to a five-year low amid mounting economic uncertainty.
Traders said a monthly survey by the Conference Board, a private research group, showed its consumer confidence index falling to 64.5 points in March compared with 76.4 in the prior month.
The single European currency was changing hands at 1.5647 dollars around 2100 GMT, up from 1.5422 dollars in New York on late Monday.
The US currency had meanwhile fallen to 99.98 yen from 100.73 yen a day earlier and also showed declines against other major currencies.
Analysts said the dollar weakened as traders bid up the prospect of fresh US interest rate cuts in the wake of bleaker economic readings.
The decline in the Conference Board's consumer confidence index was worse than expected and was digested by the markets as a separate report showed that home prices had slumped 10.7 percent from a year ago in major US cities.
The Standard & Poor's/Case-Shiller index of home prices in 20 major cities showed steep declines in the respective markets, especially in cities were prices had rocketed during a housing boom which petered out in early 2006.
Fears that the Federal Reserve will cut rates again weighed on the dollar which had notched up some gains just a day earlier.
"With the rate of decline in house prices accelerating, this may not even be the bottom for confidence," said Paul Ashworth at Capital Economics.
Traders said the latest economic news reminded investors that the Fed faces a difficult balancing act on interest rates which would normally be cut to boost growth and raised to tame inflation.
High crude oil prices, however, have made the Fed's decisions more difficult.
Consumer confidence readings are tracked closely by the markets because consumer spending accounts for a majority of economic growth.
"Many analysts are now concerned that the recent spate of bad US economic news will create a negative impact on consumer behavior," said Boris Schlossberg, a senior currency analyst at Forex Capital Markets.
"With consumption comprising more that 70 percent of US GDP (gross domestic product), a severe retrenchment in consumer spending could grind US economic activity to a halt," Schlossberg said.
The dollar has weakened notably in the past year as the US housing downturn has worsened and as a related credit crunch has swept US and global financial markets, forcing the Fed to launch a months-long campaign of rate cuts.
In late New York trade, the dollar stood at 1.0049 Swiss francs, down from 1.0202 late Monday.
The pound was priced at 2.0062 dollars, up from 1.9856 dollars a day earlier.
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