NEW YORK (MarketWatch) -- The U.S. dollar clawed back to positive territory on Tuesday, after reaching a fresh 14-month low versus the euro, amid lower stocks and data showing more weakness in the U.S. housing sector.
Helping the U.S. currency, the Bank of Canada said its strength in its own currency will dampen the economy's recovery, sending the Canadian dollar sharply lower.
The dollar index (DXY 75.73, +0.22, +0.29%) , a measure of the greenback against a trade-weighted basket of currencies, traded at 75.603, up from 75.373 in North American activity late Monday.
The euro traded as high as $1.4994 versus the dollar in earlier trade but failed to break above the psychologically important $1.50 level. It changed hands in recent action at $1.4918, down from $1.4941 in the previous session.
The dollar turned higher versus the Japanese yen, to buy 90.99 yen, compared to 90.67 yen on Monday.
The dollar began paring losses against the euro after a pair of U.S. economic reports showed an unexpectedly large drop in wholesale prices and more sluggishness in the housing sector. See more on producer prices. See more on housing starts.
In recent action, the Standard & Poor's 500 Index (SPX 1,088, -9.73, -0.89%) declined 0.4%.
Currency traders also shrugged off comments from euro-zone finance ministers expressing worries about the strength of the single currency. The officials, meeting in Luxembourg Monday night, repeated their support for the U.S. Treasury's self-professed strong-dollar policy. The euro has climbed 20% versus the dollar since March, making euro-zone exports more expensive to buyers outside the region.
Currency strategists, however, said there was little new in the rhetoric.
"European politicians will no doubt continue to air their concerns about currency 'misalignments,' although it must be said that beyond the familiar platitudes relating to the U.S. Treasury's strong dollar policy, it is unclear what the Eurogroup is prepared to do, if anything, to raise the ante," said Neil Mellor, currency strategist at Bank of New York Mellon, in a research note.
European Central Bank President Jean-Claude Trichet told reporters at a news conference with finance ministers following the meeting that "excess volatility" in foreign exchange was "bad for economic development," echoing language from the most recent joint statement by the Group of Seven, Bloomberg reported. He also reiterated support for remarks by U.S. authorities in favor of a strong dollar.
Bank of Canada
The Canadian dollar dropped versus its U.S. counterpart after the Bank of Canada maintained its overnight rate target at 0.25% and reiterated a conditional commitment to hold the current policy rate until the end of the second quarter of 2010, as largely expected by analysts.
Policy makers also said "heightened volatility and persistent strength in the Canadian dollar are working to slow growth and subdue inflation pressures."
The current strength in the loonie is expected to more than fully offset the favorable developments in the economy since July, officials said in a statement.
