Dollar Edges Higher on Global Economy Worries

The dollar edged higher against a basket of currencies Tuesday as a plunge in U.S. consumer confidence reminded investors about the dire economic outlook worldwide, boosting the greenback's safe-haven appeal.

Trading was volatile as currencies constantly shifted direction. The overall market outlook, however, remained grim, and market players favored buying the lower-yielding dollar and yen.The yen and the dollar often take their cue from perceived swings in investors' risk appetite and have tended to rise when risk tolerance falls.

"The (consumer confidence) will really weigh on the market's risk appetite ... driving investors back into the safety of low-yielding currencies—the dollar and yen,'' said Kathy Lien, director of currency research at GFT Forex in New York.

Data Tuesday showed that U.S. consumer confidence fell to a record low in January. The Conference Board, an industry group, said its sentiment index fell to 37.7 from a revised 38.6 in December, compared with forecasts for a small uptick.

In midday New York trading, the ICE Futures' dollar index a gauge of the greenback's value versus six major currencies, rose 0.1 percent to 84.502. The euro [EUR-TN Loading... was up slightly against the dollar at above $1.31 after hitting a one-week high at $1.3330 following a surprise rise in German corporate sentiment, according to electronic trading platform EBS.

The euro had earlier extended gains versus the dollar after data on U.S. single-family home prices in November came in broadly in line with expectations.US Dollar/Risk Aversion Theme Some market participants, however, expressed doubts as to how long investors will keep buying dollars despite dismal U.S. economic data.

The dollar has been the main beneficiary of downturns around the world. Investors have considered the currency a safe haven amid expectations the United States, the first major economy to hit recession, will be the first among industrialized nations to emerge from the economic slump.

This week's advanced data on U.S. gross domestic product for the fourth quarter should be a key litmus test.This week's advanced data on U.S. gross domestic product for the fourth quarter should be a key litmus test.