LONDON, Oct 25: The dollar fell sharply across the board on Tuesday after US data showed an unexpected decline in consumer confidence, while the euro strengthened on the back of solid German confidence and inflation figures.

The euro rose to $1.2101 in late European trading from $1.1987 late on Monday in New York.

The dollar stood at 114.78 yen from 115.43 yen on Friday.

The US Conference Board’s consumer confidence measure fell to 85.0 in October from 87.5 in September. Analysts had been expecting a small rebound after the sharp drop seen in the wake of the Katrina hurricane disaster.

Of particular concern was a sharp drop in the expectations component, denting hopes that the US economy would emerge relatively unscathed from the damage caused by the Katrina and Rita hurricanes.

Drew Matus at Lehman Brothers said there was “nothing redeeming” in the consumer confidence report, though he noted that more evidence would be needed on the impact on consumer spending before any firm conclusions could be drawn.

Meanwhile, the euro breached the 1.21 mark against the dollar for the first time in over a week, as it benefitted from some strong figures out of Germany which lent support to the view that the European Central Bank may hike interest rates over the coming months.

Tuesday’s key Ifo index of business confidence in Europe’s largest economy came in significantly above expectations, while German consumer price index (CPI) inflation data were also slightly above forecasts.

The Ifo Institute’s business climate index rose to 98.7 in October from 96.0 in September, well above forecasts for a very slim rise to just 96.1.

German CPI meanwhile rose 0.1 percent in October from September and was up 2.4 per cent year-on-year, above expectations for a 0.1pc drop on the month and a 2.3pc annual rise.

UBS analyst Stephane Deo said the surprise in inflation was not large but higher inflation is nevertheless “yet another argument for the ECB hawks”.

“These data are yet again adding to the risk of an ECB hike earlier than expected,” he said.

Elsewhere, the pound was slightly firmer against the dollar as Bank of England governor Mervyn King continued to suggest that British interest rates were not set for another cut by the end of the year.

In late European trade, the euro was changing hands for 1.2101 dollars from 1.1987 late Monday in New York, 138.86 yen (138.36), 0.6777 pounds (0.6778) and 1.5445 Swiss francs (1.5422).—AFP