Worsening figures on U.S. consumer spending Tuesday drove the dollar to its lowest level in months against the euro, pound, yen and Swiss franc.
The euro rose to a 3-month high versus the dollar. The currency used by 16 European countries rose to $1.3231 in late New York trading from $1.3170 late Monday. It's the first time the euro has risen above $1.32 since May 4.
The euro has recovered since dropping below $1.19 in early June, a 4-year low, amid fears of stagnating growth in European countries and governments defaulting on debt.
"The European experiment of monetary union without political union is not collapsing as many had thought a couple of months ago," Brown Brothers Harriman analysts said.
Funds set up by the European countries to bolster banks have helped ease the worst of fears, and successful debt auctions in indebted countries have reassured investors that outright default on government bonds isn't likely.
In the U.S., the prospect of slowing growth is driving down interest rates, dulling the dollar's allure as a safe haven asset. Federal Reserve Chairman Ben Bernanke said Monday the worst of the financial crisis is behind the U.S., but he also said "we have a considerable way to go to achieve a full recovery."
The Commerce Department reported Tuesday that U.S. consumers held spending steady in June as incomes remained flat. Consumer spending is the main driver of the U.S. economy.
Factory orders also dropped in June. Meanwhile, the National Association of Realtors said the number of buyers who signed contracts to purchase homes also fell.
Earnings and revenue at consumer products maker Procter & Gamble Co. and Dow Chemical Co. also fell short of forecasts.
U.S. interest rates are dropping, making U.S. assets and the dollars used to buy them less attractive to global investors. James Bullard, president of the Federal Reserve Bank of St. Louis, said recently that the Fed should revive a crisis-era program to buy government debt if deflation seems likely.
Pumping more liquidity into markets tends to devalue the dollar.
In other trading Tuesday, the British pound hit a 6-month high versus the dollar just shy of $1.60. It rose to $1.5946 from $1.5893 late Monday.
The dollar dropped to a 9-month low of 85.69 yen before recovering to 85.85 yen from 86.52 yen late Monday.
The dollar also fell to a 7-month low against the Swiss franc.