The Dollar rallied broadly on Thursday after data showed a surprisingly strong gain in US retail sales, up 1% last month, boosting expectations that the Federal Reserve may raise interest rates this year. Meanwhile, the Euro was on track for its biggest weekly decline against the Dollar in three years, buffeted by comments from officials that suggested the European Central Bank was not about to embark on an extended period of monetary tightening.

Yesterday, EurUsd was down 0.73% at 1.5448, on track for its biggest weekly loss in percentage terms since early June 2005. UsdJpy rose 1.01% to 107.93 posting earlier new 3-month 108.08 high. UsdChf jumped 1.02% at 1.0408 after hitting 1.0490 intraday high. GbpUsd dropped 0.87% to 1.9466 the lowest in 4 weeks.

Philadelphia Fed President Charles Plosser was the latest monetary policy official to hint at the possibility of higher US interest rates. On Thursday, he said current US monetary policy was supportive for growth but the Fed needs to stay vigilant in keeping inflation expectations contained. Fed Chairman Ben Bernanke last week linked the weak Dollar to import price inflation, sparking expectations that benchmark rates could rise from the current 2% this year.

By contrast, ECB President Jean-Claude Trichet last week also opened the door to a July rate hike, but policymakers since then have reiterated his message that this would not be the start of a big monetary policy tightening campaign. French economy minister Christine Lagarde on Thursday went one step further, saying that the ECB may even reconsider the July move after this weekend's G8 meeting. ECB Executive Board member Lorenzo Bini Smaghi said on Thursday the bank will do what is needed to lower inflation but it has given indications on policy moves only as far as July.