NEW YORK (AFP) — The dollar saw volatile trade Tuesday as soft economic data bolstered the view that sharp cuts to US interest rates will be needed to keep the economy on track.
The greenback recovered some ground late in the day however as a slide in global stock markets prompted traders to move away from risky bets, helping the dollar.
The euro was quoted at 2200 GMT at 1.4803 dollars, from 1.4866 dollars in New York late on Monday as the currency slipped off highs of near-record 1.49 levels.
The dollar dropped to 106.71 yen from 108.17 yen late Monday.
The US currency was wobbly for much of the day after the government reported US retail sales data fell 0.4 percent in December, the worst performance in six months and compared with analyst forecasts for a drop of just 0.1 percent.
Inflation at the wholesale level also cooled, with factory gate prices falling 0.1 percent in December.
The combination of weak economic activity and tame inflation prompted speculation of hefty rate cuts in the US.
"If consumer spending continues to be weak over the next several months, the US economy is likely to end a six-year growth phase," said Hilary Love at PNC Bank.
"This has resulted in the markets now speculating about a 75 basis point rate cut by the Federal Reserve later this month, compared to talk of 25-50 basis points as recently as a few days ago."
David Rodriguez at Forex Capital Management said the dollar saw some relief, ironically amid a sharp slide in stock markets, with the main US indexes tumbling more than two percent. In time of market turmoil, investors often turn away from risky bets and put their money back into dollars.
"The risk-sensitive single currency may be hard-pressed to forge fresh heights against the US dollar against sharp drops in the Dow and other major stock markets, but the dollar may likewise find it difficult to force a substantive rebound in the face of fast-falling interest rate differentials against major forex counterparts," Rodriguez said.
Dealers said all eyes were now on US consumer price inflation data due out Wednesday, with soft figures likely to put the dollar under further pressure.
In late New York trade, the dollar stood at 1.0925 Swiss francs after 1.0927 Monday.
The pound was at 1.9616 dollars from 1.9561.
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