Dollar falls against the euro and pound

AP News
Posted: Feb 23, 2011 3:55 PM
Dollar falls against the euro and pound

The dollar fell against euro and the pound Wednesday as investors bet that the European Central Bank and the Bank of England would lift interest rates before the Federal Reserve.

The euro reached $1.3744 late Wednesday, up from $1.3662 Tuesday. The British pound rose to $1.6200 from $1.6145.

Recent warnings on inflation from several European Central Bank governing council members have helped fuel speculation that the bank may lift interest rates in the near future. A report Wednesday on the Bank of England's policy meeting earlier this month showed that a third member of the nine-person rate-setting committee began voting in favor of raising interest rates from 0.5 percent.

Prices are rising across the globe, but investors consider policymakers in Europe and the U.K are more wary of inflation than are central bankers in the U.S. Investors perceive Federal Reserve Chairman Ben Bernanke to be more worried about high U.S. unemployment than rising prices, and lifting interest rates can slow growth.

Central banks raise interest rates to counter inflation, and higher rates tend to support a currency's value.

Expectations that rates will increase overseas have weighed on the dollar lately. Turmoil in the Middle East hasn't lifted the dollar against its major rivals, even though the U.S. currency often benefits during periods of international geopolitical tensions because of its safe-haven appeal.

The unrest in the world's key oil-producing region has fed fears of a slowdown in oil production, which has sent commodity prices soaring. That has increased expectations of rate hikes overseas to counter inflation. The currency analyst team at Brown Brothers Harriman says the dollar is slipping because the Fed still isn't expected to budge on rates any time soon or stop its $600 billion bond-buying program designed to lower interest rates even further.

The dollar index, which compares the U.S. dollar against six currencies, fell 0.36 percent Wednesday.

In other trading Wednesday, the dollar fell to 82.53 Japanese yen from 82.71 yen. It dropped to 0.9336 Swiss franc from 0.9383 Swiss franc and fell to 99.03 Canadian cents from 99.06 Canadian cents.