The dollar clawed back some early losses against the euro on Monday, after official data showed that U.S. personal income rose by much more than forecast in January.
Analysts pointed out the income growth was due in large part to a reduction in payroll taxes.
The dollar also receive a modicum of support from relatively tame euro zone inflation data.
While prices in the euro zone did not inflate as much as economists were expecting, the European Central Bank is still likely tighten monetary policy months before the Federal Reserve acts in the U.S.
The dollar dropped to a four-week low of $1.3853, but found support before hitting its lowest since November. By mid-day, the dollar had improved to $1.3790.
The buck was unable to recover any of its steep early losses against the sterling. The dollar slipped to $1.6253, nearing its lowest in almost four months.
The buck edged versus slightly higher to Y81.95 versus the yen, away from last week’s monthly low of 81.62.
Focus turns to Capitol Hill Tuesday morning, as Federal Reserve Chairman Ben Bernanke testifies before the Senate on monetary policy and the economic outlook.
Bernanke is expected to give a nod to the improving economy while insisting that the Fed’s $600 bond buying program needs to be kept in place to ensure the recovery.
In economic news, Eurozone inflation rose less than expected in January, final data from Eurostat showed.
Consumer price index rose 2.3 percent annually in January following the 2.2 percent increase in December. That was revised down from 2.4 percent reported in a flash estimate released on January 31.
The Commerce Department said U.S. personal income surged up by 1.0 percent in January following a 0.4 percent increase in December. Personal income had been expected to show a much more modest increase of about 0.4 percent.
