Investing.com - The dollar pulled back from four year peaks against a basket of other major currencies on Tuesday as investors took a breather from buying the dollar following its recent rally.
The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.31% to 84.54, after rising to highs of 84.86 on Monday, the most since July 2010.
The dollar has rallied in recent months, boosted by expectations that the strengthening recovery in the U.S. would prompt the Federal Reserve to raise interest rates sooner than markets expect.
USD/JPY was down 0.38% to 108.42, off last Friday’s six year peaks of 109.45, while USD/CHF slid 0.27% to 0.9371.
The euro was higher, with EUR/USD up 0.27% to 1.2883, recovering from 14-month lows of 1.2816 struck overnight.
Output in the euro zone’s private sector grew at the slowest rate so far this year in September data on Tuesday showed, adding to fears over the outlook for the recovery in the region.
Research group Markit reported that the euro zone composite output index, which measures the combined output of both the manufacturing and service sectors slumped to a nine month low of 52.3 from 52.5 in August.
The bloc’s services PMI slid to a three month low of 52.8 from 53.1 last month, while the manufacturing index ticked down to a 14 month low of 50.5 from 50.7.
The weak data fuelled expectations for additional stimulus measures from the European Central Bank to help shore up the recovery in the region.
The pound posted modest gains, with GBP/USD rising 0.14% to 1.6384.
Sterling’s gains were held in check after data on Tuesday showed that U.K. public sector borrowing increased from a year earlier in August.
The Office for National Statistics reported that public sector net borrowing, excluding public sector banks, was £11.6 billion in August 2014, an increase of £700 million compared with August 2013.
The commodity linked dollars found support after data earlier in the day showed that factory activity in China unexpectedly picked up this month, easing concerns over a slowdown in the world’s second-largest economy.
The preliminary reading of China’s HSBC manufacturing index for September came in at 50.5, ahead of expectations for 50.0 and up from the final reading of 50.2 in August.
AUD/USD gained 0.45% to trade at 0.8912, while NZD/USD was steady at 0.8121. The Canadian dollar was higher, with USD/CAD down 0.41% to 1.0997.