Dollar retraces sharp losses

The dollar retraced Tuesday's sharp losses against the euro and gained one percent against the Swiss franc on Wednesday as markets took a calmer view of recent dovish Federal Reserve comments and US inflation.
Investors had pushed the dollar down one cent versus the euro on Tuesday, after growth in core US consumer prices came out smaller than markets had bet and Fed Chairman Alan Greenspan sounded more dovish on the threat of inflation than previously.
The data and Greenspan's comments dashed growing speculation that the Fed may raise rates by half a percentage point on June 30 instead of the widely expected quarter-point hike.
But the dollar's losses were trimmed on Wednesday after the currency appeared to find support on technical trading charts and investors focused on what many analysts believe is an inevitable hike later this month.
"We've seen some dovish comments and moderate inflation but the Fed is still raising rates in June," said Jim Webber, chief economist at TD Securities in London.
"Most of the dollar's recovery this year is due to the strong growth story, and people are going back to that."
At 1140 GMT, the dollar was up 0.86 percent on the day at $1.2054 per euro. Earlier it matched Tuesday's one-week low of $1.2168.
"It's a short-term market - we tried the downside of the dollar, then we just came back up," said a trader at a US bank in London.
The dollar was also up a third of a percent versus the yen at 109.83, and roughly one percent stronger against the New Zealand and Australian dollars.
It also gained one percent on the Swiss franc to 1.2631, partially due to dimming expectations for a Swiss rate rise this week. The Swiss National Bank issues its quarterly policy review on Thursday.
The Fed meets next on June 29-30 and many investors expect US rates to rise from a 1958 low of 1 percent.
Until then, markets will be clamouring for new hints on US economic recovery and any inflationary pressures lurking in the economy to predict the scope and pace of future Fed tightening.
Meanwhile in the eurozone, annual inflation was confirmed at 2.5 percent in May, its highest level since March 2002 and well above the European Central Bank's goal of keeping inflation below but close to two percent.