The dollar rose sharply against the sterling on Tuesday, as news that the UK economy contracted in the fourth quarter shocked traders betting the Bank of England will soon hike interest rates.
The disappointing data from the UK took some attention away from another dismal reading on the US housing situation.
The Standard & Poor’s/Case-Shiller composite index of 20 metropolitan areas declined 0.5 percent in November from October on a seasonally adjusted basis.
However, US consumer confidence rose more than expected in January to its highest level in eight months, according to a private sector report released on Tuesday.
The Conference Board’s index of consumer confidence jumped to 60.6 in January, the highest since May 2010, from an upwardly revised 53.3 in December.
The dollar jumped two cents to $1.5750 versus the sterling, moving further away from a recent 2-month low near $1.6050.
Former Bank of England policy maker Danny Blanchflower told CNBC that the UK economy is headed for a double-dip, as concerns about upcoming austerity measures will prevent a rebound in the current quarter.
Meanwhile, the dollar was unable to rally versus the euro, staying within a hair of yesterday’s 2-month low of $1.3686. Afternoon losses dropped the dollar to Y82.20 versus the yen, compared to Y83 in early dealing.
The Federal Reserve will announce its next decision on monetary policy Wednesday afternoon. The Fed is likely to keep its key rate near zero and maintain its controversial asset purchase plan.