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The greenback rallied for another day and rose to a one-month high against the yen and a two-week high versus the euro on Wednesday, supported by a further drop in oil prices and improved confidence in the U.S. financial sector as a U.S. government rescue of Fannie Mae and Freddie Mac moved closer to congressional passage.

On Wednesday, the greenback was generally in a bid tone as the oil prices continued their decline on Wednesday following the release of U.S. crude inventory data, the delivery price for August dropped $3.09 and ended at $127.25 per barrel, which are trading more than $20 below this month's record peak of $147.27 whilst the U.S. House of Representatives prepared to vote on a measure that is expected to help the housing sector recover from its worst downturn since the Great Depression. The White House said President George W. Bush will sign the bill into law.

In late afternoon trading in New York, the dollar rose to its highest level in a month against the Japanese yen and Swiss franc to 107.97 and 1.0401 respectively. On the other side, the single currency remained under pressure after the release of worse-than-expected eurozone new industrial orders (-3.5% M/M and –4.4% Y/Y in May versus 2.5% and 11.7% the previous month) and had fallen to as low as 1.5670, its weakest level since July 9 and well below from last week's record high of 1.6040. Meanwhile, the British pound had its biggest advance in more than six weeks against the euro and climbed to a session high of 0.7839 after minutes of the Bank of England meeting on July 10 showed that Monetary Policy Committee member Timothy Besley cast the first vote for an interest-rate increase in a year while colleague David Blanchflower favored a reduction. The two dissented as the central bank kept the benchmark rate at 5 percent.

The Dollar Index on the ICE market touched 72.797, the strongest since July whilst the implied prospects for the Fed to increase benchmark lending rates in September, to 2.25 percent from 2 percent, hit 68 percent, compared with 52 percent late on Tuesday and 26 percent a week ago.

Elsewhere, the New Zealand dollar retreated sharply against the U.S. dollar and price dropped to as low as 0.7410 after New Zealand finance company Hanover Finance said it was suspending repayments of existing loans and interest. Investors are now focusing on the rate decision made on Thursday.

On Thursday, economic data releases include New Zealand RBNZ rate decision, Japan Trade data, German service and manufacturing PMI and Ifo index, eurozone service and manufacturing PMI and current account, U.K. retail sales, U.S. retail sales, jobless claims and existing home sales.

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