Forex - Dollar slips on euro's rally, news of narrowing U.S. deficits

The dollar traded mixed to lower against most other currencies on Tuesday after solid service-sector data in Europe sparked demand for the euro.

Elsewhere, estimates that the U.S. federal deficit will slip below USD1 trillion this year also pushed the greenback down as investor embraced risk.

In U.S. trading on Tuesday, EUR/USD was up 0.49% at 1.3580 after the Markit research group reported that the eurozone services purchasing managers’ index rose to 48.6 in January, beating market expectations for a reading of 48.3.

Elsewhere, the European Central Bank is scheduled to meet later this week to analyze policy, and expectations that monetary authorities will make no changes bolstered the euro even more and pushed the dollar down broadly.

Weak eurozone retail sales figures dampened spirits slightly earlier in the session, though investors quickly overlooked them.

Eurozone retail sales dropped 0.8% in December, worse than market calls for a 0.5% contraction.

Meanwhile in the U.S., the Congressional Budget Office reported earlier that the federal budget deficit should hit USD845 billion this year, the first time since President Barack Obama came to office that the figure didn't exceed USD1 trillion.

Also in the U.S., the Institute of Supply Management reported that its non-manufacturing purchasing managers' index fell to 55.2 in January from 55.7 in December, in line with expectations.

The greenback, meanwhile, was up against the pound, with GBP/USDtrading down 0.68% at 1.5656.

The dollar rose against the yen after Bank of Japan Governor Masaaki Shirakawa said he would step down three weeks ahead of schedule, withUSD/JPY trading up 1.27% at 93.55 and steady against the Swiss franc, with USD/CHF trading up 0.03% at 0.9086.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.25% at 0.9963, AUD/USD down 0.40% at 1.0396 and NZD/USD trading up 0.20% at 0.8448.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.01% at 79.59.

On Wednesday, the U.S. is to release government data on crude oil inventories.