By Richard Leong
NEW YORK (Reuters) - The dollar rose against a basket of currencies on Tuesday as surprisingly strong growth in U.S. retail sales in June soothed worries about the American economy and trimmed expectations the Federal Reserve may embark on a deep interest rate cut later this month.
The greenback strengthened versus the euro due to data that pointed to a deterioration in confidence among German investors prompted by the trade conflict between China and the United States and political tensions with Iran.
The British pound fell to six-month lows against the euro and a 27-month trough versus the dollar as the Conservative Party's Boris Johnson and Jeremy Hunt, vying to be Britain's next prime minister, were seen to be toughening their line on Brexit negotiations. Investors are worried about the rising risk of a no-deal exit from the European Union.
"U.S. data have been better than expected of late. That's shaking out some dollar negativity," said Mazen Issa, senior FX strategist at TD Securities.
In late U.S. trading, an index that tracks the dollar against a group of six currencies <.DXY> was up 0.48% at 97.395 after touching 97.438, the highest in four sessions.
Recent U.S. economic data have on balance beat expectations. Concerns about the drag from global trade disputes and sluggish inflation among developed economies, however, have led policymakers to consider cutting interest rates and/or embarking on bond purchases to boost investor confidence and business activities.
The U.S. Commerce Department said retail sales rose 0.4% in June, exceeding the 0.1% increase forecast among analysts polled by Reuters.
On Tuesday, Fed Chairman Jerome Powell reiterated a pledge to act to support the current U.S. expansion, which is the longest on record.
Dallas Fed President Robert Kaplan said he sees a case for a tactical rate cut, while Chicago Fed chief Charles Evans said he feels a 50 basis-point rate cut is needed to boost inflation.
U.S. interest rate futures
(GRAPHIC - Bets on bold first rate-cut from the Fed: https://tmsnrt.rs/2XTkkpn)
Traders also expect the European Central Bank to move policy rates deeper into negative territory later this year as the euro zone economy has been struggling.
Earlier Tuesday, the ZEW Institute said its monthly survey showed economic sentiment among German investors fell to -24.5 in July from -21.1 the month before.
The euro was down 0.47% at $1.12055 and 0.04% lower at 121.42 yen.
The single currency, however, was up 0.44% at 90.345 pence
(Additional reporting by Tommy Wilkes in LONDON; Editing by Jonathan Oatis and Susan Thomas)