The dollar slipped Thursday but pared its losses after stronger-than-expected data suggested a far more resilient U.S. economy than a recent run of reports had indicated.
Existing home sales for November, December's Chicago manufacturing index and the Conference Board's reading on consumer confidence all came in higher than market forecasts, helping the dollar recover some ground after early losses.
Traders said moves were exaggerated, with many currency dealers away from their desks for year-end holidays. Overall, the dollar was weaker across the board, getting only a small lift from the unexpectedly strong data.
"The market has taken this positively, but as for whether or not it's going to have any legs to it, I doubt it," said Michael Woolfolk, senior currency strategist at Bank of New York. "The market is not predisposed to going on a dollar buying binge right now."
Signs of a stronger U.S. economy support the view the Federal Reserve may have to hold interest rates steady for a longer period and not cut them early next year, as many had expected after recent data suggesting the economy is slowing.
Still, most analysts expect the Fed to cut interest rates at some point in 2007, in contrast to the European Central Bank, which is seen lifting rates higher, supporting the euro.
The euro rallied earlier in the session after ECB Governing Council member Yves Mersch said that euro zone interest rates remain low in historical terms.