Although the U.S. dollar rose after Chicago PMI hit four-year high, price retreated across the board in NY afternoon on profit-taking. Dollar index rose 0.1% to 77.888 and up 4.1% on the month, on pace for its best monthly gain since February.

The Chicago Purchasing Managers Index marked its third-consecutive month of progressively more optimistic business atmosphere for the US Midwest region with a score of 60.0 for December, far above the more pessimistic forecasts of 55.3 as well as November's score of 56.1

Euro staged a rebound in Europe on short-covering after Tuesday's selloff and price hit an intra-day high of 1.4361 before easing. However, with the Chicago PMI report revealing overall strength in U.S. economy and rise in production( new orders and employment were particularly encouraging), the single currency dropped briefly to a low of 1.4273 in NY morning before staging a rebound in NY afternoon. In other news, Euro zone M3 money supply growth showed a surprise fall in Nov while loans to the private sector fell at a less pronounced rate than had been expected.

Cable extended Wednesday's selloff and fell to an 11-week low of 1.5832 in European mid-day in part due to thin market condition due to ongoing worries over the U.K. economy and rising public debt. However, the British pound staged a strong rebound in NY session triggered by active cross-buying in sterling. Eur/gbp posted its biggest decline in more than two months, falling from 0.9055 to as low as 0.8911) and cable reached an intra-day high of 1.6095 in NY afternoon before stabilizing.

The dollar climbed to a three-month high against the yen on speculation the Federal Reserve is moving closer to withdrawing stimulus measures as the economy recovers, pushing bond yields higher. Despite a brief dip to 91.90 in Asia, the pair quickly picked up what it left off on Tuesday and price rallied to intra-day high of 92.77 in NY afternoon before retreating in line with dollar's broad-based softness.

Data to be released on Thursday include U.K. Nationwide house price and U.S. jobless claims. Thursday is a market holiday for both Japan and Germany.