Dollar slips as pessimism about euro eases

The dollar fell on Tuesday after upbeat European factory data helped temper investor pessimism about the euro, while some traders favoured the yen as the Nikkei average hit a 13-month intraday high. Despite another piece of strong US economic data showing factory growth surging to a seven-month high, traders said the market was looking beyond the Federal Reserve's expected interest rate rises over the coming months.
The euro zone manufacturing data helped bolster expectations that the European Central Bank will hold interest rates steady.
"Economic indicators in the euro zone have started to show some improvement and the market players who used to hold a totally bearish view on the euro have become a bit more bullish," said a trader at a Japanese bank.
The euro had fallen about 10 percent against the dollar this year in the face of the US currency's widening interest rate advantage and amid tepid economic growth and concerns about political unity in the euro zone.
Also lending the euro a boost, Russia's central bank said on Monday it had increased the share of euros in its target currency basket and cut the dollar's share.
Traders have often cited Russia as a buyer of euros in recent months.
The euro zone purchasing managers index, a barometer of strength in the economy, rose to 50.8 in July from 49.9 in June, data showed on Monday. That was above the 50.0 forecast by economists and suggested the industrial sector is moving from contraction to expansion.
Meanwhile, the US Institute for Supply Management's PMI rose to 56.6 in July from 53.8 in June, above Wall Street's estimates of a more subdued gain to 54.5.
The yen was helped by some foreign investors tip-toeing into the currency as the Nikkei approached the 12,000 line, even with the threat of a snap election hanging over the market.
Foreign investors are big holders of Japanese shares and bought 989.2 billion yen ($8.81 billion) worth in the first three weeks of July alone.
The euro was at $1.2210, up from around $1.2180 in late New York trade. It rose about 0.5 percent on Monday, trading as high as $1.2252, according to electronic trading platform EBS.
The dollar slipped about 0.4 percent to 111.80 yen. The euro hovered around 136.55 yen, in sight of a three-month high above 137.20 yen.