The dollar dropped against the euro for a second day as declines in housing and industrial production raised speculation that the Federal Reserve will delay increasing borrowing costs this year.
Sterling dropped versus euro as King predicted British inflation will exceed 4 percent this year. The rate accelerated to 3.3 percent in May, the highest level since at least 1997, the Office for National Statistics said in a report. Mervyn King said the path to bringing inflation within the central bank's target is ``uncertain.''
U.S. housing starts dropped to an annual rate of 975,000 in May, from a revised 1.008 million the previous month, the Commerce Department said. It was the lowest since March 1991.
``It doesn't imply we are going to see a quick recovery of the housing market,'' said Matthew Strauss, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank by assets. ``The adverse effects on consumers will continue to be with us for the next two quarters and into 2009.''
Industrial Production
Production in U.S. factories, mines and utilities declined 0.2 percent last month after dropping 0.7 percent in April, the Fed reported. Economists had forecast industrial production would rise 0.1 percent.
The dollar weakened earlier against the euro after the Wall Street Journal and the Financial Times reported the U.S. central bank would probably leave borrowing costs unchanged beyond its June policy meeting.
Futures on the Chicago Board of Trade show a 14 percent chance the Fed will increase the 2 percent target rate for overnight lending between banks by a quarter-percentage point at its June 25 meeting, compared with 26 percent odds yesterday. The balance of bets is for the Fed to keep the rate unchanged. The odds of the central bank raising borrowing costs at the August meeting also fell.
The dollar has lost 10 percent against the euro since the Fed started to lower rates from 5.25 percent in mid-September. The weaker dollar has helped push commodities, such as oil and corn, to record highs, sparking inflation. Prices paid to U.S. producers rose 1.4 percent in May, the biggest gain since November, the Labor Department said.
The euro pared gains against the dollar after a report from the Mannheim-based ZEW Center for European Economic Research showed investor confidence in Germany fell this month to the lowest in more than 15 months.