The Dollar dropped against the Euro on Wednesday after a report showed the US private sector shed more jobs than expected in June, which may diminish the likelihood of a rate increase by the Federal Reserve.

The ADP Employer Services data, which showed the largest drop since November 2002, is often seen as a precursor to the government's monthly report on the labor market (early release on Thursday). Poll of Economists expect another drop in non-farm payrolls last month.

Forex investors bought the Euro ahead of an expected interest rate hike by the European Central Bank on Thursday. The ECB is widely expected to lift its key lending rate by 25bp to 4.25%, and President Jean-Claude Trichet's news conference after the meeting may indicate further increases. Higher benchmark rates in Europe will boost the return of Euro-denominated assets and weight on the greenback. More fuel for ECB hawks came from euro zone producer prices, which were above forecast at 7.1%(YoY) in May, with euro zone headline inflation running at 4.%.

Yesterday, EurUsd was 0.58% higher at 1.5883, having earlier hit 1.5892 2-month high. EurJpy went up 0.33% at 168.21. UsdJpy edged lower to 105.89, down 0.26%, retracing from 106.78 intraday high. UsdChf dropped 0.67% to 1.0141. GbpUsd was 0.07% lower at 1.9928 in a volatile session.

US Treasury Secretary Henry Paulson said on Wednesday that the US economy faced a tough Q2 and Europe would not be immune to the impact. He also said high oil prices, further home price declines and capital markets turmoil will prolong the American economic slowdown, while Europe and Britain were also showing signs of slower growth.

Sterling fell broadly as tumbling UK housing shares and a profit warning from retailer Marks and Spencer cast a shadow over the slowing British economy. Charlie Bean, Bank of England deputy governor, said the British economy is facing its most challenging time since at least the early 1990s.

Euro and Dollar fell against a broadly stronger Australian Dollar, which jumped after Australian retail sales soundly beat expectations for May. AudUsd advanced 0.85% to 0.9629, near a 25-year 0.9669 peak set on Monday. At 7.25%, Australian interest rates are among the highest in the industrialized countries.