The dollar edged toward record lows today against the euro after US data showed inflation pressures were tame in February, affirming expectations of further interest rate cuts by the Federal Reserve to boost a weakening economy.
The dollar did get a brief boost on a rise in personal income. But this was offset by the slight increase in spending, the smallest since September 2006, which suggested consumption - normally the buttress of the US economy - was not providing its usual support.
On a month-over-month basis, core PCE (personal consumption expenditure) was as expected and no impact there," said George Davis, chief technical strategist at RBC Capital Markets in Toronto.
"On a year-over-year basis, the outcome was slightly weaker than expected and the same thing for the deflator. So from that aspect, it points to a more benign outlook for inflationary pressures. Perhaps a small negative for the dollar but fairly small," he added.
In early New York trading, the euro was up 0.2 per cent at $1.5818, less than a cent below last week's historic peaks at $1.5904. Against the yen, the euro rose to 157.48.
The euro was also boosted by inflation-focused comments from a euro zone policy-maker, which strengthened the view that the European Central Bank is unlikely to cut rates any time soon.
Speaking after data from four German states pointed to a likely inflation pick-up in the euro zone's biggest economy and thus in the 15-nation bloc as a whole, ECB Governing Council member Axel Weber said price pressures were alarmingly high.
Against the yen, the dollar was up 0.2 per cent at 99.78 yen, helped by gains in euro/yen after Weber's tough inflation talk.
Traders were also on high alert for rumors of more troubles at US investment banks as the fallout from the credit crisis continues.