The dollar rallied versus other currencies on Tuesday, supported by its safe haven appeal after a major ratings agency warned that France and the U.K. may lose their pristine credit ratings.

Moody’s downgraded Italy, Spain, Malta, Portugal, Slovakia and Slovenia, and warned about the triple-A ratings of UK, France and Austria.

Still, Italy raised the targeted amount at lower cost in an auction of sovereign debt today.

The dollar improved to $1.3125 versus the euro, its best level since touching a 2-month low of $1.3312 last week.

Strong gains took the dollar to its highest since Halloween versus the yen. With the Bank of Japan boosting unexpectedly injecting more liquidity into its sluggish economy, the dollar jumped to Y78.46.

The Bank of Japan increased the size of its asset purchase program by Y10 trillion to Y30 trillion, after the economy contracted more than expected in the fourth quarter.

And the buck continued to trim recent losses versus the sterling, rising to a 2-week high of $1.5660 before leveling off.

U.K. Consumer price annual inflation slowed for the fourth month in a row to 3.6 percent in January from 4.2 percent a month ago.

Bank of England Gov. Mervyn King expects the pace to fall back to the central bank’s 2 percent target by the end of the year.

In other economic news, German economic sentiment rose to its highest since March 2011.

The Mannheim-based Centre for European Economic Research (ZEW) economic sentiment index for Germany climbed to 5.4 in February from -21.6 in January.

Retail sales in the U.S. rose by less than expected in the month of January, according to a report released by the Commerce Department on Tuesday, with a drop in auto sales partly offsetting notable increases in sales in other segments.

The report showed that retail sales rose by 0.4 percent in January, while revised data showed that sales were unchanged in December. Economists had expected sales to increase by 0.7 percent.

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