The dollar hit a one-month low against a basket of currencies on Wednesday after comments from a German government official stoked expectations of higher euro zone interest rates. The US currency was also dented against the yen as a fall in Asian stocks prompted investors to unwind risky carry trades, in which the low-yielding yen is used to finance purchases of assets giving higher returns elsewhere.
The dollar was also hurt by crude oil's rise to record highs near $130 a barrel and a surge in gold as investors are concerned about the US economy, which is facing weak growth and quickening inflation. Investors are now awaiting Germany's Ifo index of business sentiment for May due later in the day for more clues on whether the euro will extend its gains.
"Better-than-expected Ifo data is likely to boost the euro further," said Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ Securities. "If the euro manages to climb steadily above $1.57, the European single currency will be set to rise towards its all-time high against the dollar," Shioiri said.
The dollar index hit fresh one-month lows near 72.30 before recovering to 72.36, still down 0.1 percent on the day. The euro rose to $1.5665 up 0.1 percent from late US trading on Tuesday. It hit all-time highs above $1.60 in April. Wolfgang Franz, the president of Germany's ZEW economic research institute and a member of the government's panel of economic advisers, said on Tuesday that he thought the European Central Bank would lift rates soon. The institute's survey on investors' sentiment, however, unexpectedly worsened in April.
The ECB has held interest rates at 4 percent since last June, with the market pricing in a rate rise by the end of this year. The dollar fell 0.4 percent against the yen to 103.20 yen. The euro slipped 0.3 percent against the Japanese currency to 161.65 yen as investors trimmed yen carry trades.
The Australian dollar rose 0.1 percent to $0.9598 just below a 24-year high of $0.9619 hit on Tuesday, when the minutes of the Reserve Bank of Australia's meeting in May showed it actively considered raising rates as inflation was uncomfortably high.
"Further dollar selling is expected if the minutes give an impression that the Fed is more concerned about economic growth than inflation, pushing back expectations for a US rate hike," said Tsutomu Soma, senior manager of foreign assets at Okasan Securities.
The Fed has slashed rates by 3.25 percentage points to 2 percent since last September as a crisis in the housing and credit markets slowed the economy. Many investors expect the Fed to pause lowering rates and start raising them later in the year.
Data on Tuesday showed that US producer prices excluding energy and food rose at their fastest pace since 1991 in the year to April, highlighting inflation concerns that may limit the Fed's options for supporting a weak economy.