Britain's banks are set to swap between 80 billion and 90 billion pounds ($175 billion) of mortgage-backed assets for Treasury bills, nearly twice the base level set by the Bank of England last month, the Financial Times reported on Friday.

The dollar extended losses against the euro and gave up gains versus the yen Friday, hurt by a report showing that U.S. consumer confidence tumbled to its lowest in 28 years in May.

The dollar fell in Europe Thursday as new data showed a drop in U.S. industrial production and unexpectedly strong first-quarter economic growth in Germany.

If we thought the Bank of England was walking a tightrope before, then the Bank's May inflation report says the rope is even tighter. Since the February report growth expectations have deteriorated and inflation expectations have strengthened.

British inflation will shoot up over the next year and remain above the 2 percent target in 2 years if rates fall by half a percentage point as markets expect, the Bank of England's new forecasts showed on Wednesday.

The Federal Reserve may start using regulation or even interest rates to fight asset-price bubbles, instead of trying to limit the damage once they burst, as it has done until now, the Financial Times reported on its Web site.

The dollar rebounded against the euro Wednesday as U.S. stocks extended gains and shrugged off a report showing tame reading on U.S. consumer prices in April.

ECB policymaker Christian Noyer said on Tuesday that an explosive mix of soaring commodity prices and "permissive" monetary policy in some countries with dollar pegs could trigger an inflationary spiral which would hurt poor nations most.

Soaring food and fuel bills pushed up Britain's inflation rate by its biggest amount in nearly six years, further denting expectations of interest rate cuts despite a slowing economy.

UK housing sentiment slumped to record lows in April, underscoring continued weakness in the sector and piling pressure on the Bank of England at a time when snowballing inflation could force it to keep interest rates on hold.  

The U.S. dollar rallied broadly Tuesday after a report on April retail sales beat forecasts and supported views that the Federal Reserve will probably stop cutting interest rates next month.

The dollar rose versus the Japanese yen and Swiss franc Monday as investors snapped up riskier assets such as stocks, encouraged by a dip in oil prices and unexpectedly strong earnings from HSBC.

Australia's central bank on Friday  raised its forecasts for inflation this year further above its  comfort zone, but said a significant slowing in domestic demand  was underway which would bring inflation back into the band by  the end of 2010.

The dollar fell Friday as another round of credit market losses prompted investors to reduce exposure to risky assets and heightened concern about the health of the U.S. economy.

The European Central Bank left its key interest rate unchanged at 4 percent on Thursday, as widely expected, and its president Jean-Claude Trichet warned on inflation pressures.