Dollar off highs after U.S. data but remains supported

Investing.com - The dollar pulled away from session highs against the other major currencies on Tuesday, after the release of soft U.S. consumer confidence data but still remained close to a four year peak amid growing expectations for an early rate hike by the Federal Reserve.

The Conference Board said its index of consumer confidence fell to 86.0 this month from a reading of 93.4 in August, whose figure was revised up from a previously reported 92.4. Analysts expected the index to decline to 92.5 in September.

A separate report showed that the Chicago purchasing managers' index fell to 60.5 this month from a reading of 64.3 in August. Analysts had expected the index to decline to 61.9 in September.

But demand for the dollar continued to be underpinned by expectations that the Fed is moving closer to hiking interest rates.

Investors were looking ahead to Friday’s U.S. nonfarm payrolls report after August’s report fell short of expectations.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was last up 0.35% to 86.05, after rising to peaks of 86.34 earlier, a high last seen in June 2010.

EUR/USD hit lows of 1.2571, the weakest since September 2012, and was last down 0.49% to 1.2624.

The drop in the euro came after official data showed that the annual rate of euro are inflation fell to a five year low of 0.3% this month from 0.4% in August.

Eurostat said the core rate of inflation, which strips out food and energy costs, was down to 0.8%, and not 0.7% as reported earlier in the session, from 0.9% in August.

The slowdown in inflation added to pressure on the European Central Bank to implement additional stimulus measures to stave off the threat of deflation in the region after the bank unexpectedly cut rates to record lows last month.

A separate report showed that the euro zone’s unemployment rate was unchanged at 11.5% in August.

USD/JPY was up 0.13% to 109.63, not far from Monday’s six year peaks of 109.75, while sterling fell to two week lows against the dollar, with GBP/USD slipping 0.14% to 1.6218.

In the U.K., data on Tuesday showed that the U.K. economy grew 0.9% in the second quarter, up from the preliminary estimate of 0.8%, while the annual rate of growth was unchanged at 3.2%.

Elsewhere, the pound hit two year highs against the single currency, with EUR/GBP down 0.35% to 0.7783.

The Swiss franc was at 14 month lows, with USD/CHF climbing 0.43% to trade at 0.9554.

The Australian and New Zealand dollars were higher, with AUD/USD up 0.30% at 0.8746 and NZD/USD rising 0.49% to 0.7802. Meanwhile, USD/CAD added 0.16% to fresh six-month highs at 1.1180 after data showed that Canada's economy stagnated in July, after 0.3% growth in June.

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