NEW YORK (AFP) - The dollar held mostly steady despite a report showing a record US current account deficit in the second quarter that could pressure the greenback.
The euro traded at 1.2244 dollars at 2100 GMT trading in London from 1.2252 late on Monday in New York.
The dollar dipped to 109.66 yen against 110.02 on Monday.
Official US figures showed that the deficit widened to a record 166.2 billion dollars in the second quarter, higher than the 147.2 billion recorded in the first quarter and expectations of a more moderate increase to 160 billion.
"The larger current account deficit could lead to a weaker dollar and higher interest rates if the US is unable to attract enough investment, currently 1.8 billion dollars a day, to fund the deficit," said Sung Won Sohn at Wells Fargo Bank.
The higher than expected shortfall prompted the dollar to shed most of the gains it had made earlier in the session, particularly against the euro, following a disappointing German business survey.
Neil Mackinnon, chief economist at ECU Group, said the current account numbers prompted a knee-jerk dollar sell-off but noted that it could have been much worse.
"The dollar has proved somewhat resilient in the face of what looked like pretty horrendous current account numbers," he said.
He said there were two main reasons why the dollar did not fall as much as it could have.
First, the financing of the deficit has not proved too difficult for the US authorities and second, Tuesday's core US retail sales data for August were solid.
Though official figures showed that retail sales in August fell by 0.3 percent from the previous month, more than the 0.1 percent predicted by analysts, the core rate, which excludes auto sales, rose by the expected 0.2 percent.
John Ryding, analyst at Bear Stearns, said real consumer spending appears to remain on track to post a significantly stronger gain in the third quarter than that seen in the second quarter.
Earlier in the session, the euro had been knocked by a disappointing survey into German business confidence.
The ZEW research institute said its German economic expectations index for September fell 6.9 points from August to 38.4, its lowest level since June 2003. Analysts had pencilled in a moderate increase to 45.4.
In late New York trade, the dollar stood at 1.2588 Swiss francs from 1.2592 Monday.
The pound was at 1.7960 from 1.7953 late Monday.