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Dollar sinks on US economic outlook concerns

Washington - The dollar fell sharply on Wednesday helped by a disappointing report on US services sector growth and comments from a top Federal Reserve official suggesting concern over rising economic risks.

The dollar lost nearly two cents on the euro, at $1.1111, and more than two yen, at €¥117.81.

The euro's gain was aided early in the day as fresh data pointed to some persistent strength in the eurozone economy, with a 0.3% rise in retail sales in December, and the November number was revised upward by 0.3 percentage points to a flat reading.

"Fundamentals for eurozone households are solid," said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. "Consumers' expectations of their economic and financial situation in the next 12 months sit close to all-time highs," he noted.

But the euro's gain and the dollar's slide picked up speed after the MNI news agency published an interview with New York Fed chief William Dudley, who sounded more cautious about the turmoil in the global financial markets.

He also said that a strengthening dollar could have "significant consequences" for the US economy, according to MNI.

"We're acknowledging that things have happened in financial markets and in the flow of the economic data that may be in the process of altering the outlook for growth and the risk to the outlook for growth going forward," he said.

Adding to that, the ISM's US services sector purchasing managers index for January dropped more than expected, pointing to sluggish growth in the largest part of the US economy.

"Today's ISM hit harder... because services were to be this year's bright spot while manufacturing deals with a higher dollar and global growth issues," said Sophia Kearney-Lederman at FTN Financial.

Meanwhile, the British pound surged 1.3% on the dollar to $1.4601 ahead of the Bank of England's meeting Thursday, which is not expected to see any adjustments to policy.

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