The dollar fell across the board on Thursday, succumbing to a broad rally in the euro after the European Central Bank raised interest rates to a three-year high and ECB chief Jean-Claude Trichet upped his 2007 inflation forecasts.
The euro climbed to $1.2045, its highest level against the dollar in almost a month, as the market digested the ECB's widely expected quarter-percentage-point rate hike to 2.5 percent and Trichet's upbeat outlook for growth prospects in the 12-member bloc.
The euro's broad rally - it chalked up its biggest one-day rise in percentage terms against sterling in seven months - put heavy downward pressure on the dollar.
The greenback made a fresh 14-year low against the Canadian dollar and the dollar index, a broad measure of the greenback's value against major currencies, had its steepest one-day fall in five weeks.
Peter Schiff, president of Euro Pacific Capital, Inc, in Connecticut, said moves in financial markets on Thursday, like the 22-year high in silver, gold's rally, the 14-year high in the Canadian dollar and the selloff in US Treasuries, were potentially "very significant."
"Both the dollar and bonds look like they could come under some serious selling pressure in the near-term," Schiff wrote in a note to clients.
Others, however, took a slightly more benign view, arguing that the ECB's move on rates was expected anyway and that Trichet's comments weren't as hawkish as they might have been.
"The euro led the move and the dollar's weakness is broad-based, which is important but I'm skeptical that we're going to get a lot of (euro) upside here," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Connecticut.
"It feels to me it will require something fresh to really get it going again," Ruskin said of the euro's rally.
Late afternoon, the euro was up over one percent on the day at $1.2041, and up sharply against the yen at 139.47 yen and against sterling at 68.61 pence.
The dollar was down over one percent against the Swiss franc at 1.2975 francs and off 0.2 percent against the yen at 115.85 yen.
The greenback was down almost half a percent on the day around C$1.1310, while sterling was up a bit at $1.7545.
The euro's gains were enhanced by technical factors too. The euro found solid support from the 14-day moving average at $1.1910, which provided the springboard for a break up through the 100-day moving average at $1.1940 and the 55-day moving average at $1.2000.
The ECB joined the ranks of data-dependent central banks like the Federal Reserve as Trichet said the bank would not "pre-commit" to rate action at subsequent meetings, but would rather base its policy decisions on "facts and figures."
As Trichet took a fairly hawkish stance on rates, euro zone 10-year bond yields rose to one-year highs, dragging benchmark US Treasury yields to four-month highs. At the same time, US blue chip stocks sagged as investors punished bank stocks, hurt by the prospect of rising borrowing costs.
The dollar barely budged earlier when the latest weekly US jobless claims data showed a rise of 15,000.
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