The dollar took another beating at the hands of the euro on Wednesday, dropping to a 15-month low on expectations that an impending interest rate hike will be the first in a series of tightening measures from the European Central Bank.
While the Federal Reserve continues to downplay inflation, the ECB is expected to hike its benchmark lending rate to 1.25 percent from 1 percent on Thursday.
ECB officials have been preparing the markets for the modest rate hike, pointing out their lone mandate is to combat inflation.
With crude oil well above $100 and other commodities soaring, numerous central banks have already scaled back measures taken to support economies struggling to emerge from the worst recession in decades.
The dollar dropped to $1.4330 versus the euro, its lowest since January 2010. The buck has dropped more than 15 cents from its January highs.
This morning Portugal paid nearly six percent to borrow for only 12 months, fueling speculation that its neighbors will need to step in and help before Lisbon defaults.
Its far from a certainty, but the Bank of England might also hike interest rates along with the ECB tomorrow. The dollar dropped to $1.6330 versus the sterling, near a yearly low of 1.64 set back in March.
On the flip side, the dollar rose to its highest since September versus the yen. Early gains took the dollar as high as Y85.51, further from the post-earthquake record low of Y76.30
In economic news from the U.S., mortgage applications continued to decline as interest rates crept back towards five percent, housing industry figures showed Wednesday.
Mortgage applications decreased 2.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s Weekly Mortgage Applications Survey for the week ending April 1, 2011.