The greenback fell against euro and other major currencies as a smaller-than-expected rise in U.S. inflation diminished speculations that the Federal Reserve will raise interest rate to curb inflation risk. In addition, risk appetite of investors improved on the news that four of the largest U.S. banks, including Morgan Stanley and JPMorgan Chase & Co. repaid billions of dollars in taxpayer bailout funds. This reduced the demand for dollar as a safe-haven asset.
In Asian trading earlier, the signal currency was able to recover this week’s losses against the dollar, however, euro dropped against the greenback on increased risk aversion due to the weakness in European bourses with FTSE 100, CAC and DAX indexes declined more than one percent. In New York morning, euro rose against the dollar after U.S. CPI came in lower than expected at 0.1% in May compared to the market's forecasts of 0.3%. This tamed monthly inflation data led investors to reduce bets on the Federal Reserve will raise the target lending rate by the end of this year. The single currency hit session high at 1.3986 after White House adviser Lawrence Summers said the Federal Reserve should have permission fm the U.S. Treasury Department before it extends emergency lending to troubled financial institutions.
The British pound also dropped versus the U.S. currency in European session as stocks slipped. Despite a brief but sharp rise after U.K. claimant count in May came in better than expected, sterling tumbled from 1.6483 to an intra-day low of 1.6220 against the dollar as the minutes of Bank of England on June 4 showed policy makers decided it was too early to know if the measures designed to lower borrowing costs would work and they voted to continue their asset-purchasing program. However, the pound was able to stage a strong rebound in tandem with euro in New York session partly due to the low U.S. inflation data and short-covering.
Data to be released on Thursday are SNB rate decision, U.K. retail sales, CBI distribution trade, Canada CPI, U.S. jobless claims, leading indicators, Philadelphia Fed survey and Treasury Secretary will testify about financial regulation at 17:30GMT.