LONDON: The dollar was back under pressure on Tuesday after three days of frantic trading that have seen the first serious doubts in its nine-month march higher and some signs of more resilience around the euro.
San Francisco Fed chief John Williams was the latest to weigh in on the debate over the dollar's gains, saying the U.S. economy could handle a stronger currency and pointing to the chance of an interest rate rise in June.
Other Federal Reserve officials, and new forecasts from the U.S. central bank, have cast doubt on how much more appreciation of the dollar the Fed will easily tolerate and raised speculation it will push back any tightening of monetary policy.
The dollar has fallen almost 5 percent in response. It was down another 0.4 percent on the day against the euro and a basket of currencies after the first batch of purchasing manager surveys in Europe.
"The trend may not be as straightforward as it has been in recent months," said Ian Stannard, head of European FX strategy at Morgan Stanley in London.
"The Fed has turned data dependent so we may see more volatility. The rebound may still have some way to go; data today should support the euro and we might get to $1.12. But the long-term indicators are still against the euro."
Many major bank strategists forecast the euro to fall close to parity with the dollar this year, but the pace of its dive to $1.05 earlier this month took many by surprise and prompted JP Morgan and HSBC to suggest the rally may be nearing a conclusion.
While the European Central Bank's programme of money-printing will weigh on the euro over the next year, surveys of German and French purchasing managers both came in better than forecast on Tuesday, pointing to the positive impact the programme should have on European growth and financial markets.
"The bigger question of whether the economic recovery has any legs remains unanswered," Societe Generale analysts said in a morning note.
"In the meantime, after breaking above key resistance at 1.0940 yesterday. EUR/USD's next technical target is 1.1070 and we'd be more interested in re-selling there than in looking for much follow-though from this morning's initial weakness."
Against the yen, the dollar eased 0.2 percent to about 119.50 yen, near the bottom of its 122.04 yen to 119.29 yen range seen over the past couple of weeks
The Australian dollar also dipped briefly after a survey showed that activity in China's factory sector fell to an 11-month low in March.
The Aussie touched an intraday low of $0.7835 right after the release of the China flash HSBC PMI, but later came off that trough. It last traded at $0.7876, down just 0.1 percent on the day.
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