During U.S. trade, the dollar moved above the critical two-year high against the euro, with EUR/USD down 0.53% to 1.2055.
The single currency suffered broad selling pressure amid fears that Spain will be the next country in the euro zone to require a full-scale bailout after the yield on Spanish 10-year bonds rose to a euro-era high of 7.60%, well above the 7% threshold considered unsustainable if a country is to remain solvent.
Earlier Tuesday, Spain successfully auctioned EUR3.02 billion of three and six-month government bonds but at higher yields than in previous auctions.
Further adding to the gloom, data indicated that manufacturing activity in Germany slowed to the lowest level in more than three years in July, just one day after rating’s agency Moody’s cut its outlook on Germany to negative from stable.
Separate reports showed that manufacturing activity in the euro zone contracted at the fastest pace since May 2009 in July, while the French manufacturing sector contracted at the fastest pace in 38 months.
The weak euro zone data offset a report showing that China’s HSBC manufacturing purchasing managers index improved to 49.5 in July, its highest level since February, from a final reading of 48.2 in June.
While the index remained below the 50 level which indicates contraction, the improvement from the previous month eased concerns over a slowdown in the world’s second largest economy.
The greenback edged lower against the pound, with GBP/USD easing up 0.13% to hit 1.5525, but pushed higher against the Swiss franc, withUSD/CHF up 0.28% to trade at 0.9938.
The greenback slid lower against the safe-haven yen, with USD/JPYdown 0.22% to 78.22.
The yen remained supported after Japanese Finance Minister Jun Azumi reiterated Tuesday that Tokyo was ready to take decisive action against speculative moves or excessive volatility in the yen, in order to shield the largely export based economy from the effects of the currency’s strength
The greenback was fractionally lower against its Canadian, Australian and New Zealand counterparts, with USD/CAD inching up 0.05% to 1.0194, AUD/USD inching up 0.07% to 1.0264 and NZD/USD adding 0.15% to trade at 0.7886.
In Canada, official data showed that retail sales advanced by a seasonally adjusted 0.3% in May, missing expectations for a gain of 0.5%, after falling by a revised 0.6% in April.
However, core retail sales, which exclude automobile sales, rose by a seasonally adjusted 0.5% in May, beating expectations for a 0.2% increase.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.50% to 84.18.
In other news Tuesday, representatives from the European Union and the International Monetary Fund were holding talks with the Greek government in Athens, aimed at getting the country’s economic reform program back on track, amid ongoing speculation over a possible Greek exit from the euro zone.
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