Dollar gains in New York

The dollar hit an 11-month high against the yen and a one-month peak versus the euro on Tuesday as a modest brightening of the Federal Reserve's economic outlook had investors downplaying expectations of future stimulus measures. The Fed provided few clues on the prospects for further monetary easing, but offered a slight upgrade to its economic outlook, backed up by a report released earlier in the day that showed retail sales posting their largest gain in five months in February.
A quickening in the pace of US job growth has led some analysts to rein in their expectations of a third round of asset purchases by the Fed, called quantitative easing. Another round of QE would be negative for the dollar as it is tantamount to printing money and dilutes its value.
"People might want to hang their hats on the Fed's mention of inflation as a reason to think the probability of QE3 is lower," said Mark McCormick, currency strategist at Brown Brothers Harriman in New York. "But I'd downplay that because they're stating that inflation will be temporary." The euro was last down 0.6 percent at $1.3072 after falling as low as $1.3050, its lowest level since February 16.
"There's still uncertainty hanging over the euro, and while the Fed's still in easing mode, other major central banks are a bit more dovish than the Fed," McCormick said. The US retail sales data followed a report on Friday showing that February was the third straight month to record a gain of more than 200,000 jobs.
Fed officials remain uncertain whether the progress reducing unemployment can be maintained given still-sluggish economic growth, and many economists believe the central bank will launch another round of bond buying later in the year. The euro, which continues to flirt with its 50-day moving average, is trying to recover from a break downward at the end of last week and needs to resurface above the $1.3210 area to reduce the negative bias toward the currency, a trader said.
The dollar's outperformance is also a reflection of diverging economies, with a brightening picture in the United States contrasting with the euro zone where some countries are either in recession or slipping back into one. The dollar recouped losses against the yen that occurred after the Bank of Japan stopped short of taking aggressive easing steps on Tuesday. Some investors had been betting on a repeat of the central bank's surprise easing last month. Against the yen, the dollar was last up 0.8 percent at 82.98 after touching an 11-month peak of 83.08 yen, its highest since April 20, 2011.