The dollar fell against the euro for a third day on speculation the Federal Reserve will trail the European Central Bank in tightening monetary policy.
The Dollar Index dropped before the US central bank today releases minutes from its April 26th-27th meeting after which Chairman Ben Bernanke signaled the economy still requires monetary support.
The euro was supported by prospects the ECB will raise interest rates even as the region's debt crisis persists. New Zealand's dollar advanced for a second day versus the greenback after a report showed producer prices rose in the first quarter.
"We don't hear any talk about rate increases in the US, while such expectations are supporting the euro," said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co in Tokyo. "The Fed is printing dollars aggressively, but we have yet to see inflation concerns rise. That means the US is far away from exiting stimulus measures."
The greenback fell to $1.4266 per euro as of 6:50am in London from $1.4237 yesterday in New York. The dollar weakened to 81.10 yen from 81.42 yen. Japan's currency fetched 115.71 per euro, after touching 116.41, the lowest since May 11th. The Dollar Index, which tracks the greenback against the currencies of six major US trading partners, declined 0.2 per cent to 75.223.
Traders are betting the ECB will raise its target rate by 96 basis points over the next 12 months, a Credit Suisse AG index showed.
Another index forecasts 32 basis points of increases by the Fed for the same period.
"People are expecting another rate increase by summer" from the ECB, said Keiji Matsumoto, a currency strategist in Tokyo at SMBC Nikko Securities. "That's acting as a buffer against the euro's decline, while the fiscal issue weighs on the currency."
Mr Bernanke, at his first press conference following a policy decision last month, said the economy still requires monetary support while the need to contain inflation means further easing is unlikely. Fed policy makers kept the target rate for overnight lending between banks at zero to 0.25 per cent. The rate has remained at that level since December 2008.
Bloomberg