Dollar drops versus euro

The dollar fell across the board on Tuesday after a report suggested US inflation was well contained in April, backing a view that the Federal Reserve will likely cut interest rates later this year. The euro's surge against the dollar also helped push it to a fresh record high against the yen.
The euro has gained across the board over the past two months on expectations that euro-zone interest rates will continue to rise. In contrast the dollar has suffered from a view that the Fed will likely cut interest rates from the current level of 5.25 in the second half of this year to shore up an economy growing more slowly than the rest of the industrialised world.
"We're one step closer to removing the inflation bias from the Fed statement with today's CPI," said Michael Woolfolk, senior strategist at The Bank of New York. "This further supports the Fed's case that slower US growth will bring core inflation back into line with price stability without resorting to higher interest rates. That's good for stocks and bonds and bad for the dollar," he added.
The euro last traded up 0.35 percent at $1.3590. One trader said the currency got a boost from European investors repatriating their share of the US Treasury's quarterly payout of more than $20 billion in coupons on Tuesday.
The currency's rise gained momentum after automatic buy orders were triggered above $1.3560, traders said. That helped the euro rise to a peak of 163.67 yen on electronic trading system EBS, the highest since the launch of the common European currency in 1999. It later retreated to 163.45 yen.
The dollar was little moved against the yen, trading down around 0.1 percent on the day at 120.23 yen. The greenback touched 120.59 earlier in the session, its highest in almost three months, in the wake of soft Japanese machinery orders data that strengthened a view that the Bank of Japan will raise interest rates only at a gradual pace this year.
The BoJ is expected to leave interest rates on hold at 0.5 percent the end of a two-day policy meeting on Thursday. The dollar also slumped to a one year low of 1.0964 Canadian dollars, as the Canadian currency got a boost from a report showing a rebound in manufacturing shipments in March.
The Canadian dollar is the best performing major currency against the US dollar this year, as buoyant commodity prices and foreign take-over interest in Canadian companies have helped push the currency in sight of a 29-year high.
The dollar also came under mild pressure after data showed that the United States attracted a net $67.6 billion of long-term capital inflows in March, up from the previous month but below economists' forecasts.
Analysts dissecting the data noted that it underscored a recent trend of US investors' growing purchases of foreign stocks and bonds, which could make it more difficult for the United States to finance its bulging current account deficit.