The dollar fell the most against the euro in a week on concern crude oil prices may
prolong the slowdown of the U.S.
economy.
European Central Bank President Jean-Claude Trichet said the level of inflation
is ``worrying.''
Oil prices are 88% higher from a year ago. Crude oil for August delivery
increased as much as 1.7% to $138.28 a barrel after Iran
said it carried out a test of a missile capable of hitting Israel. The
exercise, reported on Iranian state television, raised concern that Israel will attack the Mideast's
second-biggest oil producer.
The euro-dollar exchange rate and oil have moved in the same direction 90
percent of the time in the past year, according to calculations based on the
correlation of their value.
Traders raised bets that the ECB will raise borrowing costs again to curtail 4
percent annual inflation, twice policy makers' 2 percent target. The implied
rate on the December Euribor interest-rate futures contract rose 0.02
percentage point to 5.12 percent.
Trichet said last week that he has ``no bias'' for monetary policy after
increasing the ECB's main refinancing rate a quarter-percentage point to 4.25%.
EUR/USD rose from $1.5650 to
$1.5730 before position-adjustment dragged the rate down to $1.5660. Bids late supported
rate up to session highs $1.5750.
GBP/USD rose from $1.9670 to
$1.9840, triggered stops and offers.
USD/JPY tested highs on Y107.60
before retreated to Y106.70.
Thursday focus will be on BOE rate
decision. Analysts predict rate will stay unchanged at 5,0%.
Later at 12:30
GMT US
Labor Department will release its Jobless Claims report.