Investing.com - The dollar backed off multi-year highs against the yen and the euro on Tuesday as investors locked in gains after a rally that saw the greenback rise to its highest level in four years against a basket of other major currencies.
USD/JPY was down 0.45% to 113.47, easing back from Monday’s seven-year peaks of 114.20.
The yen tumbled after the Bank of Japan surprised markets by restarting its bond purchasing stimulus program on Friday, in a bid to shore up the faltering economic recovery.
The move fuelled expectations that the European Central Bank will soon have to implement quantitative easing measures in order to stave off the threat of deflation and spur growth in the euro area.
EUR/USD was up 0.23% to 1.2512, off the two-year trough of 1.2437 struck on Monday.
The European Commission cut its growth and inflation forecast for the euro zone on Tuesday, underlining the diverging monetary policy stance between the Federal Reserve and its major peers.
The commission cut its forecast for euro zone economic growth to 0.8% this year, from 1.2% in the spring and now expects growth of 1.1% in 2015, down from 1.7% previously.
The EC said it expects inflation in the euro area to remain below the ECB’s target of close to but just below 2% until at least 2016. It also warned that unemployment levels will remain at their current high levels for longer than previously hoped.
The dollar was also lower against the pound, with GBP/USD up 0.21% to 1.6005.
Sterling held gains despite data on Tuesday showing that growth in the U.K. construction sector slowed to a five month low in October as residential building growth slowed sharply.
Research group Markit reported that its construction purchasing managers’ index declined to 61.4 from 64.2 in September. It was the lowest reading since May and was below forecasts of 63.5.
Elsewhere, USD/CHF slid 0.27% to 0.9632.
The Canadian dollar fell to more than five year lows against the greenback, as world oil prices dropped to the lowest level since 2010 after top oil exporter Saudi Arabia cut prices for the U.S.
USD/CAD advanced 0.41% to 1.1403, the most since July 2009.
The Australian and New Zealand dollars were broadly higher, with AUD/USD rising 0.60% to 0.8731 and NZD/USD climbing 0.51% to 0.7758.
The Aussie received a boost after the Reserve Bank of Australia left rates on hold at 2.5% earlier Tuesday and indicated that monetary policy was likely to remain steady.
The US dollar index, which tracks the performance of the greenback against a basket of six major currencies, was down 0.21% to 87.28, holding below Monday’s four-year peaks of 87.54.