On Tuesday the dollar strengthened broadly against its peers, as soft data from the euro zone and the U.K. undermined market sentiment and as market players awaited the Federal
Reserve's upcoming policy statement.
The greenback started to rebound as investors awaited 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 U.S. dollar index rose 0.74% to 94.92.
The U.S. is expected to release data on building permits and housing starts.
The euro dropped as much as 1.3 percent to touch a one-week low of $1.1160 as 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. Coeure's fellow ECB governing council member Christian Noyer said the bank was ready to take further action to meet its inflation target.
Separately, the ZEW Centre for Economic Research said on Tuesday that its index of German economic sentiment fell to 41.9, the lowest level since December, from April's 53.3.
Another weighing factor was the fear over the prospects of a Greek default, although the country’s labor minister said Tuesday that a deal with its lenders on a cash-for-reforms deal would soon be reached.
Meanwhile, sterling dropped 1 percent to fall below $1.55 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, while analysts had expected annual inflation to stay unchanged at zero.
The ONS said that consumer prices rose just 0.2% from a month earlier, compared to forecasts for an increase of 0.4% after a 0.2% increase in March.
The Aussie was down, with AUD/USD lower 0.26% to 0.7969, while NZD/USD rose 0.24% to 0.7409.
The Reserve Bank of Australia said in the minutes of its May policy meeting that it remained open to further rate cuts, due to the slowdown in China's economy and concerns over the Australian job market.
The Reserve Bank of New Zealand meanwhile 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.