Dollar Hits 2-Week High on Lower Consumer Confidence

The dollar rose to a two-week high against the euro Tuesday after a report showing U.S. consumer confidence deteriorated sharply in October boosted the greenback's safe-haven appeal.

The disappointing confidence data bodes ill for U.S. growth because it indicates lower consumer spending, which accounts for 70 percent of the economy. Without U.S. consumers, the world economy is also unlikely to recover as swiftly as hoped.

"When the U.S. consumer is not likely to continue spending, it means it's going to be a long, drawn-out type of recovery. Nothing is going to happen overnight," said Dan Cook, senior market analyst at IG Markets in Chicago. "So we see that drive to risk aversion."

The Conference Board's U.S. consumer confidence index fell to its weakest since July and well below forecasts. The euro fell to around $1.47 after hitting a session of low $1.4771, its lowest since Oct. 13, according to Reuters data. On Monday, the euro hit a 14-month high of $1.5064 on electronic trading platform EBS.

The euro also fell to around 135 yen, pulling back from a more than two-month high hit on Monday near 138.49 yen.

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"We're of the mind-set that the euro is a bit overextended. Every single player in the market is long euros and we're seeing a correction now," said Greg Salvaggio, senior vice president of capital markets at Tempus Consulting in Washington.

The ICE Futures dollar index, a measure of its performance against six other major currencies, rose to 76.323, a two-week high, well above a 14-month low of 74.94 hit last week.

The dollar fell to near 91 yen .

Overly Optimistic

Analysts said one of the reasons for the dollar's resilience is a heavy short position on the currency accumulated the last few weeks, a sign that the greenback could rebound in the near term. IMM/FRX.

In addition, recent U.S. economic figures, such as the University of Michigan consumer confidence report and the weekly jobless claims, have not met the market's expectations, raising doubts about the health of the U.S. economy.

"The market is beginning to realize that the recovery scenario priced into the current levels of risk assets may be overly optimistic," said Boris Schlossberg, director of currency research at GFT Forex in New York.

He added that Wednesday's U.S. durable goods data will be the "next critical test of the economy's health" and could well determine if the pullback in risk assets could be sustained for the rest of the week.

The dollar also gained against the Swiss franc to around 1.02 francs , and was up against the New Zealand dollar , which fell to US$0.74.

Market participants also looked ahead to Wednesday's interest-rate decision from Norway and Thursday's first estimate for third-quarter U.S. gross domestic product data.

The Norges Bank is seen raising rates for the first time since the global crisis hit less than two years ago.

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