Forex - Dollar falls on lackluster data, U.S. fiscal jitters

The dollar edged lower against most major currencies on Wednesday as fears brewed that a fiscal impasse in Washington could potentially shut down the government and roil markets, while soft data clouded expectations as to when the Federal Reserve will begin tapering stimulus programs.

Improving German sentiment data sent investors chasing the euro on Wednesday, which further weakened the U.S. currency.

In U.S. trading on Tuesday, EUR/USD was up 0.39% at 1.3525.

The House of Representatives recently approved legislation to fund government through Dec. 15, however, lawmakers also voted to defund President Barack Obama's healthcare bill, the Affordable Care Act, which set the stage for a fiscal showdown between Democrats and Republicans.

While the bill faces little chance of survival, concerns that both parties will go back and forth crafting and rejecting spending proposals as the U.S. runs close to hitting its debt ceiling repelled investors away from the greenback.

Failure to agree on a solution could result in a government shutdown in October.

Spotty data in the U.S. weakened the greenback by leaving investors unable to guess when the Federal Reserve will begin to taper the size or pace of its USD85  billion asset-purchasing program, which seeks to spur recovery by driving down interest rates, weakening the dollar in the process.

In a report, the Census Bureau said that U.S. new home sales rose 7.9% to a seasonally adjusted 421,000 units in August from a downwardly revised 390,000 in July. Analysts were expecting new home sales to rise to 420,000 units last month. 

A separate report showed that U.S. core durable goods orders, excluding transportation items, fell 0.1% in August, disappointing expectations for a 1% increase, after an upwardly revised 0.5% contraction the previous month. 

Overall durable goods orders in the U.S. rose 0.1% last month, short of expectations for a 0.2% increase following a downwardly revised 8.1% decline in July.

Meanwhile in Europe, solid German consumer confidence bolstered demand for the euro.

The forward looking GfK index of German consumer confidence rose to 7.1 for October, while September’s reading was revised up from 6.9 to 7.0.

Analysts were expecting the October figure to come in at 7.0

The greenback was down against the pound, with GBP/USD up 0.49% at 1.6082.

The pound saw support after the Confederation of British Industry reported that its retail sales index rose to 34.0 in September from 27.0 in August, the highest level since June 2012. Analysts were expecting the index to decline to 24.0.

The dollar was down against the yen, with USD/JPY down 0.31% at 98.44, and down against the Swiss franc, with USD/CHF trading down 0.45% at 0.9088.

The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.12% at 1.0313, AUD/USD down 0.26% at 0.9367 and NZD/USD trading down 0.40% at 0.8248.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.36% at 80.40.

On Thursday, the U.S. is to release the weekly report on initial jobless claims, as well as final data on second quarter growth and private sector data on pending home sales.