Investing.com - The dollar softened Tuesday against most major currencies amid demand for risk-on asset classes fueled by ebbing fears of a Russian invasion of Ukraine, though the greenback later reversed those losses as markets looked past geopolitical concerns in eastern Europe.
In U.S. trading on Tuesday, EUR/USD was up 0.01% at 1.3736.
Market sentiment improved after Russian President Putin said Moscow reserved the right to use force in Ukraine’s Crimea region in the event of “lawlessness” but added that such a move would be a last resort.
Markets also applauded a Russian order for troops engaged in military exercises close to Ukraine’s borders to return to their bases.
Still, the safe-haven dollar enjoyed some support, as Russian forces still maintain military presence in Crimea.
Concerns that the standoff may result in sanctions slapped on Russia and hamper global economic recovery also edged the dollar into higher territory later in the session.
Elsewhere, upbeat U.S. data on manufacturing and consumer spending supported the dollar as well.
The Commerce Department reported Monday that personal spending rose 0.4% in January, above expectations for an increase of 0.1%., while personal income rose 0.3%, beating expectations for a 0.2% increase.
The core PCE price index, which is stripped of volatile food and energy components, inched up by a seasonally adjusted 0.1% in January, in line with expectations, after rising 0.1% in December.
The core PCE price index rose at an annualized rate of 1.2%, above forecasts for a 1.1% increase, after rising at a rate of 1.1% in December.
Consumer spending is the single biggest source of U.S. economic growth, accounting for as much as two-thirds of economic activity.
The Federal Reserve pays close attention to personal income and spending when deciding the fate of monetary policy, and Monday's data prompted investors to assume the U.S. central bank will continue scaling back its monthly asset purchases as the year progress.
Fed asset purchases, currently set at $65 billion a month in Treasury and mortgage debt, aim to spur recovery by suppressing long-term borrowing costs, which weakens the dollar as a side effect by sending investors to stocks in hopes investing and hiring accompany rising equity prices.
The dollar also saw support after the Institute for Supply Management revealed that its manufacturing purchasing managers’ index rose to 53.2 last month from 51.3 in January, beating forecasts for a reading of 52.0.
Meanwhile in Europe, the number of unemployed individuals in Spain declined unexpectedly in February, easing concerns over the health of the euro zone’s fourth largest economy, official data showed on Tuesday.
In a report, Spain’s Employment Ministry said the number of unemployed people fell by a seasonally adjusted 1,900 last month, defying expectations for an increase of 74,200. The number of unemployed people rose by 113,100 in January.
Elsewhere, the dollar was up against the yen, with USD/JPY up 0.79% at 102.25, and up against the Swiss franc, with USD/CHF up 0.47% at 0.8874.
The greenback was down against the pound, with GBP/USD up 0.04% at 1.6672.
Soft U.K. data also capped the sterling's gains.
Markit Economics reported earlier that its U.K. construction purchasing managers' index fell to 62.6 in February from 64.6 in January, the highest level since August 2007. Analysts had expected the index to fall to 63.0 last month
The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.25% at 1.1106, AUD/USD up 0.08% at 0.8943 and NZD/USD up 0.24% at 0.8390.
The Reserve Bank of Australia left rates on hold at 0.25% at its rate review earlier and indicated that it continues to see a period of stability on monetary policy.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.12% at 80.18.
On Wednesday, the U.S. is to release the ADP report on private-sector job creation, which leads the government’s nonfarm payrolls report by two days. Meanwhile, the ISM is to publish a report service sector activity.