Dollar Mixed as Downturn Fears Ease

The dollar was mixed on Wednesday as a report on the U.S. service sector indicated a less severe downturn and retail sales in Europe dipped unexpectedly.


The economic data comes a day after Federal Reserve Chairman Ben Bernanke's made his strongest expression of concern yet over the greenback's slide.

The 15-nation euro was near flat against the dollar. The pound sank against the greenback from Tuesday's level of $1.9658.

The U.S. service sector grew at a better-than-expected pace in May but slower than in April, suggesting that higher prices for food and fuel may be crimping business in retail, entertainment and agriculture.

The Institute for Supply Management said Wednesday that its service sector index was 51.7 in May, following a stronger-than-expected reading of 52 for April. Wall Street economists surveyed by Thomson Financial/IFR had expected a reading of 50.3 in May.

A reading above 50 indicates the sector, which comprises roughly 80 percent of the total economy, is growing.

Retail sales fell sharply in April for the 15 nations that use the euro, the EU's statistics agency said Wednesday, with consumers using far more of their take-home pay to buy food and fuel.

On Tuesday, Bernanke said inflation had become a more prominent concern, suggesting that the string of recent U.S. interest-rate cuts may be over.

The dollar has been weighed down over recent months by the Fed's aggressive rate cuts as it tries to boost a faltering economy.

Lower interest rates often weigh on a country's currency as investors transfer funds to higher-yielding assets.

"Currency markets are certainly responding well to Bernanke's comments yesterday regarding shifting the focus onto strengthening the dollar, with gains being seen across the board as a result," said James Hughes, an analyst with CMC Markets in London.

The ECB and Bank of England both are expected to keep their interest rates unchanged when they meet on Thursday.

The dollar was up slightly against the yen .