The dollar touched a 26-year low against sterling and traded near a record lowversus the euro today as expectations for U.S. rate cuts contrasted withprospects for monetary tightening in Europe and Asia.
The US currency pared some of its earlier losses against the euro and sterling,but it fell against the yen. It also held near yesterday's 17-year low against theAustralian dollar.
Demand for the dollar started to dwindle after a report yesterday showedbelow-forecast US core consumer prices for March.
The US data contrasted sharply with a jump in UK consumer prices, whichstoked expectations for a rate hike, driving sterling above $2 for the firsttime since 1992 when Britain was forced to exit the Exchange Rate Mechanism, andthen higher still to levels last seen in 1981.
The euro is also slowly closing in on historic highs versus the dollar,rising above $1.3600 for the first time in two years and coming within 60 ticksof record peaks set in December 2004.
By early morning in New York, the euro was little changed at $1.3583, downfrom its peak of $1.3616, and within sight of record peaks around$1.3670.
Sterling rose as high as $2.0133, its strongest since June 1981,on expectations the Bank of England will raise interest rates by at least 25basis points to 5.5 per cent in May - which would top the US federal fundsrate. It last traded at $2.0060.
The pound got a further boost today with the publication of aboveforecast UK average earnings data.
Investors continued to shift funds to the euro after the European CentralBank kept its benchmark interest rate unchanged at 3.75 percent last week, butsuggested it was likely to raise rates in June or beyond to stem higherinflation.
In contrast, most economists expect the Fed to cut its benchmark ratessometime this year, even though the U.S. central bank repeated its main concernremains price pressures.
Wednesday is a relatively quiet data day, with the focus on speeches byEuropean Central Bank President Jean-Claude Trichet, ECB Governing Councilmember Axel Weber and U.S. Treasury Secretary Henry Paulson. (Additionalreporting by Simon Falush in London)