The greenback fell broadly against major currencies on Wednesday after an unexpected drop in durable goods orders, adding speculation on further interest rate cuts. Interest-rate futures showed a 40% chance that the Fed will lower the 2.25% target lending rate by a half-percentage point to 1.755 at its April 30 meeting, comparing with 30% on Tuesday.

U.S. durable goods fell by 1.7% in February (forecast was an increase of 0.8%). U.S. new home sales also dropped by 1.8% to an annual rate of 0.59 million in February versus the upwardly revised 0.601 million in January.

The Munich-based Ifo institute showed its business climate index increased to 104.8 this month from 104.1 in February, higher than the expectation of 103.3. Both U.S. durable goods and housing reports contrasted with European data on Wednesday, suggesting the euro-zone economy was much healthier than that of the United States

The single currency rallied from 155.83 to 1.5859 and from 155.69 to 157.47 against the dollar and the Japanese yen respectively on Wednesday. ECB President Jean-Claude Trichet said in testimony to European Union lawmakers in Brussels that interest rates at a six-year high will help contain inflation. His relatively hawkish comments also provided support to the single currency.

The British pound weakened from 2.0112 to 1.9927 in European session after Bank of England policy makers said they expect sterling to decline as economic growth slows. Central bank governor Mervyn King told lawmakers the pound's decline is an ‘unwinding of the appreciation’ in 2006. However, cable rebounded to close at 2.0084 on short-covering together with renewed dollar’s weakness against major currencies.

U.S. currency weakened against the Japanese yen from 100.33 to 98.87 and trimmed losses in U.S. session after the release of slightly better-than-expected U.S. new home sales report for February.

Thursday will see the release of German Gfk index, U.K. CBI distribution trade, GDP, jobless claims and personal consumption.