The dollar struggled near a two-week low on Thursday as minutes of the last US Federal Reserve meeting raised expectations that future interest rate increases would be limited after policymakers revealed a more cautious outlook towards inflation.
"It is no longer about the timing of the next rate hike or about the subsequent ones but about what the terminal rate for the US Federal Reserve would be and that expectation is becoming lower by the day," said Edward Hardy, a corporate market analyst at Worldfirst, an FX consultancy, in London.
Against a broad basket of currencies, the dollar was broadly flat at 93.053, its lowest since September 26. It has declined more than 1.5 percent this week. The Fed minutes on Wednesday showed many policymakers still felt that another rate increase this year "was likely to be warranted" but several noted that additional tightening was dependent on upcoming inflation data.
The dollar's renewed weakness pushed the euro to a two-week high after some strong data supported a growing view that the European Central Bank will announce a plan to wind down its huge stimulus plan at a policy meeting later this month.
"Given the Fed, the backing off of the concerns from Catalonia and the upcoming ECB meeting, the euro should already be higher today," said John Marley, head of FX strategy at Infinity international, a currency risk management firm. Political concerns have also ebbed for now after Catalonia stopped short of formally declaring independence from Spain, putting a floor under the euro.
The euro touched its highest in more than two weeks at $1.1878, and was last up 0.1 percent on the day at $1.1860. It has risen for five consecutive sessions. Industry data from Italy beat forecasts, after Germany reported robust trade data earlier this week, indicating a broad-based economic recovery in the euro zone despite the single's currency double-digit gains this year.
Morgan Stanley strategists say the euro is set to move higher on increasing signs of robust economic activity and as global large money managers remain underweight the single currency in an environment of strong global liquidity. Large option expiries around current levels on the euro exchange rate kept the currency in a tight range. US producer price data on Thursday and consumer price numbers on Friday will be the next focus, after US jobs figures last week showed a rise in wages that boosted expectations that inflation is picking up.
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