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The dollar tumbled to $1.50 versus the euro for the first time in more than a year, and continued to decline versus the resurgent sterling, as traders bet the interest rate gap between the US and Europe will widen.
While the Fed has been adamant that stimulus measures and accommodative monetary policy will remain in place until the economy is fully recovered, many traders expect that central bankers in the euro area will hike borrowing rates at the first sign of inflation.
With the US government seen having a weak dollar policy, the buck dropped to 1.5020 versus the euro. Rising risk appetite fuel by a rally in equities has weighed on the dollar since March, causing it to plummet from a 2009 high near 1.2500.
The dollar also gave back further ground against the sterling, plunging to 1.6600. Just last week, the dollar was sitting at a 5-month high near 1.5700.
Dollar weakness caused commodities prices to rise, benefiting resource-linked currencies. The dollar dropped back below C$1.04 versus its Canadian counterpart after hitting a recent high above C$1.0550 earlier in the day.
Meanwhile, the buck continued to see little movement against the yen, holding above 90 for a third day. The buck has stabilized after testing a 1995 low of 87.08 earlier this month.
Reflecting the recent economic recovery, the Federal Reserve's Beige Book report on Wednesday noted stabilization or modest improvements in many sectors since the last report.
The Beige Book, a compilation of anecdotal evidence on economic conditions from each of the twelve Fed districts, showed that residential real estate and manufacturing led the more positive sector reports, with both sectors continuing a pattern of improvement that emerged over the summer.
In economic news from overseas, the Monetary Policy Committee of the Bank of England unanimously voted to hold the interest rate at 0.5% and to continue the asset purchase programme totaling GBP 175 billion, the minutes of the meeting showed Wednesday. The meeting was held on October 7 and 8.
Also, Bank of Japan Deputy Governor Kiyohiko Nishimura hinted that the central bank may end its corporate funding programmes on December 31, when they expire.
Looking ahead, the Labor Department is due to release its customary jobless claims report for the week ended October 17 Thursday morning. Economists expect a slight rise in claims to 517,000.
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