The dollar weakened Tuesday, easing from seven-year highs on speculation that recent gains were overdone.
Although the Federal Reserve is widely expected to raise interest rates ahead of schedule in the first half of 2015, policy makers may go slow with subsequent rate hikes given the fragility of the global economy.
Yesterday, data showed Chinese imports fell unexpectedly and export growth slowed. And with Europe and Japan in the dumps, the U.S. economic recovery could be threatened by global headwinds.
Focus now shifts to the Federal Reserve, which will debate next week whether to scrap its forecast that interest rates will stay low for a “considerable time.”
In the meantime, the dollar drifted lower to $1.24 versus the euro, away from last week’s 2-year high near $1.22.
The European Central Bank is widely expected to announce stimulus measures in the coming weeks. Top ECB officials have in recent days indicated they are growing increasingly worried about euro zone deflation.
The dollar also gave back a portion of its strong recent gains versus the sterling, dropping to $1.565 from a yearly peak near $1.554.
Momentum has also been lost against the yen, with the dollar falling to Y119.50 from last week’s 7-year peak above Y122.