Investing.com - The dollar strengthened broadly against a basket of other major currencies on Tuesday, as downbeat data from the euro zone and the U.K. dampened market sentiment and markets looked ahead to the Federal Reserve's upcoming policy statement.
The dollar continued to recover from recent losses as investors turned their attention to Friday’s U.S. inflation data and Wednesday’s minutes of the Fed's April meeting for fresh indications on the timing of an initial rate hike.
The greenback had come under broad selling pressure as a string of downbeat economic reports dampened hopes for a second quarter rebound after a sharp slowdown in growth in the first three months of the year.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.74% to 94.92.
EUR/USD tumbled 0.95% to one-week lows of 1.1207 after senior European Central Bank policymaker Benoit Coeure said the central bank is planning to speed up the pace of its bond-buying stimulus program before the summer in order to avoid the "notably lower market liquidity" in late July and August.
Also Tuesday, the ZEW Centre for Economic Research said that its index of German economic sentiment fell to 41.9, the lowest level since December, from April's 53.3. Economists had expected a reading of 49.0.
Fears over the prospects of a Greek default also continued to pressure the single currency, even after the country’s labor minister said Tuesday that an agreement with its lenders on a cash-for-reforms deal would soon be reached.
The pound was also lower, with GBP/USD down 0.87% to a one-week trough of 1.5518 after data showed that the U.K. entered into negative inflation last month for the first time since 1960.
The U.K. Office for National Statistics said the annual rate of inflation dipped 0.1% in April after remaining unchanged in the previous two months. Economists had expected annual inflation to remain unchanged at zero.
Consumer prices rose just 0.2% from a month earlier the ONS said, compared to forecasts for an increase of 0.4% after a 0.2% increase in March.
Elsewhere, the dollar was higher against the yen and the Swiss franc, with USD/JPY up 0.09% to 120.09 and with USD/CHF gaining 0.46% to 0.9306.
The Australian was weaker, with AUD/USD down 0.26% to 0.7969, while NZD/USD rose 0.24% to 0.7409.
In the minutes of its May policy meeting, the Reserve Bank of Australia said it remained open to further rate cuts, due to the slowdown in China's economy and concerns over the Australian job market.
At the same time, the Reserve Bank of New Zealand said its inflation expectations for the next two years ticked up to 1.9% in the last quarter from 1.8% in the three months to December.
Meanwhile, USD/CAD edged up 0.16% to trade at 1.2181.
Later in the day, the U.S. was to publish data on building permits and housing starts.