Investing.com -- The euro rallied against the dollar on Tuesday halting a steady depreciation, as a flurry of mixed economic data coincided with rising concerns of a potential default by Greece on its sovereign debt.
EUR/USD gained more than 1% in European afternoon trading to move above 1.07, before settling at 1.0669 in the U.S. afternoon session. Before Tuesday's rebound, the euro had declined more than 4% since Mar. 1, amid expectations of an imminent interest rate hike by the Federal Reserve.
A flurry of economic data released on Tuesday morning prompted a polarizing response from economists. U.S. retail sales for March rose 0.9% for the month, marking its first monthly increase since October. Strong gains in automobile, furniture and department store sales, led to the highest monthly increase since last March.
The data could be interpreted as bearish, however, since some economists forecasted a weather-related bounce of more than 1%, following a harsher than usual winter. A reading over 1% might have assuaged the concerns of those who were bearish on the economy following a weaker than expected jobs report in March.
At the same time, the U.S. Department of Labor's Producer Price Index rose 0.2% last month following a 0.5% decline in February. The increase is a strong harbinger for continued growth in the Consumer Price Index, the Labor Department's main indicator on inflation. The Fed is looking for inflation to move to its targeted goal of 2% before it decides on the timing of an interest rate hike.
Currency traders, on the whole, interpreted Tuesday's data as bearish, as the euro rallied and yields on U.S. Treasuries plunged following the release of the reports. During U.S. afternoon trading, yields on the U.S. 2-Year, the U.S. 10-Year and the U.S. 30-Year were all down more than 2.95%.
Elsewhere, the International Monetary Fund trimmed its forecast for GDP growth in the U.S. for 2015 from 3.6% to 3.1%, while increasing estimates of GDP growth in the euro zone from 1.2 to 1.5%.
"The U.S. economy is actually in fairly good shape. The fundamentals are good, the banks are in decent shape, the corporations have cash and households have decreased debt," IMF chief economist Olivier Blanchard told CNBC. "In all the margins it looks like the elements for sustained growth are there."
In spite of the euro's steady depreciation against the dollar since the start of the year, Blanchard did not seem overly concerned.
"It's probably going to put a brake on U.S. recovery but the Fed can adjust by increasing rates if the effects of appreciation are negative," Blanchard added. "We're not historically at extreme levels. If it were to continue a lot, some would worry but we're very far from that."
Tension between Greece and its euro zone creditors continued to remain high on Tuesday. Hours after the Financial Times reported that Greece is formulating a plan on how to respond from a possible default on its debt, officials from Athens denied the report and shot down speculation of a new election that would effectively unseat the Syriza government.
The comments came ahead of next Monday's deadline from the euro zone working group for a list of revised Greek reform measures it deems necessary to unlock critical aid. Yields on the 2-Year Greek bonds spiked more than 20% amid the uncertainty.