Investing.com - The dollar traded mixed to lower against most major currencies on Tuesday after an upbeat German economic sentiment report sparked demand for the euro, which prompted investors to sell the greenback for profits.
In U.S. trading on Tuesday, EUR/USD was up 0.67% at 1.2534.
The ZEW Centre for Economic Research reported earlier that its German economic sentiment index rose by 15.1 points to a four-month high of 11.5 this month from October’s reading of -3.6.
Analysts had expected the index to improve by 4.5 points to 0.9 in November.
In addition, the index of euro zone economic sentiment increased to 11.0 in October from 4.1 in September, above expectations for an increase to 4.3, and the better-than-expected data gave the euro a shot in the arm.
The single currency has softened against the dollar in recent sessions as investors prepare for U.S. monetary policy to grow less accommodative while Europe moves in the opposite direction,
European Central Bank President Mario Draghi said on Monday that policymakers will do what it takes to bolster the European economy.
Draghi said "unconventional measures" needed to ensure recovery could involve the purchases of sovereign debt, a monetary policy tool known as quantitative easing that aims to suppress long-term borrowing costs to spur recovery, which weakens paper currencies and boosts stock prices to boost the economy.
The ECB’s current stimulus program includes purchases of asset-backed securities and covered bonds
Tuesday's economic sentiment data eclipsed an uptick in U.S. wholesale prices.
The Commerce Department reported earlier that producer prices inched up by a seasonally adjusted 0.2%, confounding forecasts for a 0.1% decline, after falling 0.1% in September.
Year-over-year, the U.S. producer price index rose at 1.5% in October, outpacing expectations for a 1.2% increase and following a gain of 1.6% in the preceding month.
The core producer price index, which is stripped of volatile food and energy components, eased up by a seasonally adjusted 0.4% last month, beating expectations for a gain of 0.2% and following a flat reading in September.
Core producer prices rose 1.8% year-on-year in October, surpassing forecasts for 1.5% and up from 1.6% in the preceding month.
The Federal Reserve pays close attention to core prices when determining monetary policy.
The dollar was up against the yen, with USD/JPY up 0.24% at 116.93, and down against the Swiss franc, with USD/CHF down 0.67% at 0.9584.
Prime Minister Shinzo Abe called for snap elections to take place next month to seek a fresh mandate for his economic policies, which call for a weaker yen.
Furthermore, the prime minister announced plans to delay a planned sales tax hike due to take place next October after an increase in April of this year played a part in plunging Japan into a recession in the third quarter.
He also announced a fresh package of tax and spending measures designed to bolster growth in the short term.
The announcement came one day after data showed that Japan’s economy unexpectedly contracted by an annualized 1.6% in the third quarter after a 7.3% contraction in the previous quarter, which puts the country in a recession.
Investors were looking ahead to the Bank of Japan’s policy statement on Wednesday after the central bank surprised markets by expanding its asset purchasing stimulus program last month.
Still, recent market talk of Japan's snap elections sent the dollar to seven-year highs against the yen, leaving many investors to sell the greenback on the actual news of the event and scoop up nicely-priced yen position, which capped the pair's advance despite upbeat U.S. data.
The greenback was up against the pound, with GBP/USD down 0.03% at 1.5635.
The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.04% at 1.1303, AUD/USD up 0.25% at 0.8728 and NZD/USD up 0.25% at 0.7930.
The US dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.41% at 87.65.
On Wednesday, the U.S. is to release data on building permits and housing starts.
Also on Wednesday, the Federal Reserve is to publish the minutes of its October meeting.