NEW YORK The dollar rose on Tuesday from record lows as investors trimmed bets for further declines in the U.S. currency ahead of key economic data later this week.
The greenback had sunk to successive all-time troughs against both the euro and a basket of major currencies, hurt by signs of a slowdown in the U.S. economy, a half-percentage-point Federal Reserve interest rate cut last month and expectations of more easing to come.
But after such sharp sell-offs, investors took a breather on Tuesday, partly on fears that policy-makers may be tiring of such a weak dollar.
A source close to the preparations for a Eurogroup meeting told Reuters that Europe will push for a stronger statement against exchange rate volatility from the Group of Seven rich nations when they meet later this month.
A report on Tuesday showed an index of pending U.S. home sales in August fell to its lowest since 2001, when the history of the data began. But, despite the weak housing data, the dollar strengthened.
"The dollar is firmer across the board as profit-taking on short dollar positions gets into full swing," currency strategists with investment bank Brown Brothers Harriman in New York wrote in a note to clients. "Underlying dollar bearish sentiment has not disappeared, but a good deal of it has been priced in."
Fresh clues on the health of the U.S. economy and the need for more rate cuts may come with September non-farm payrolls data on Friday, especially after the August data reflected the first contraction in the job market in four years.
In late afternoon trading in New York, the dollar index .DXY, a gauge of the greenback's value against a basket of six major currencies, rose 0.4 percent to 78.282, rebounding from an intraday lifetime low of 77.657 hit on Monday.
The euro was down 0.5 percent at $1.4156, not far from Monday's all-time high of $1.4281, according to Reuters data.
Few analysts believe the dollar's long-term decline has ended or that the troubled U.S. housing sector -- the source of global credit market turmoil -- has turned around. But for now dealers said the bar has been raised for news that can drag the dollar sharply lower.
"In general, the market is pretty well aware of the housing recession, and so the immediate impact of these kind of numbers is going to become less pronounced going forward," said Dustin Reid, foreign exchange strategist with ABN AMRO in Chicago.
In yen trading, the dollar edged higher to 115.81 yen, while the euro shed almost half a percent to 163.94 yen.
The Australian dollar dropped after it struck an 18-year high against the U.S. dollar this week, falling 1 percent to US$0.8848. The New Zealand dollar lost 0.8 percent against the greenback.
Apart from economic data and positioning, market participants have been taking notice of comments by European policy-makers ahead of the G7 meeting. Many analysts believe European Central Bank President Jean-Claude Trichet's statements on Monday referring to the U.S. government's strong dollar policy could set the stage for a concerted push for stronger language on currencies ahead of the G7 meeting.
(Additional reporting by Kevin Plumberg in New York)