The dollar fell against the euro on Thursday as strong German business confidence data and
tough inflation comments by a European Central Bank policy-maker dashed hopes for a near-term interest rate cut in the euro zone.
An improvement in investors' appetite for risk, following a sharp rebound in European stocks, pushed down the U.S. dollar against high-yielding currencies such as the British pound, the Australian and Canadian dollars.
ECB's governing council member Axel Weber said the Federal Reserve's surprise decision to cut interest rates by 75 basis points on Tuesday had not shifted the ECB focus on euro zone
inflation, dampening rising expectations that it too will have to cut rates soon.
"The fact that there seems to be a bit of calm in the equity markets has in some regard sent the forex market towards selling dollars," said John McCarthy, director of trading at ING Capital Markets in New York.
"Weber made the usual hawkish comments which underpin the euro and we are just seeing follow through from that."
The euro jumped to session high of $1.4733, on track for a third consecutive day of gains.
The dollar was flat versus the yen . Against the Swiss franc, the dollar fell .
The euro had come under selling pressure in recent weeks as signs emerged that weakness in the U.S. economy is having a knock-on effect on the euro zone, fueling the argument for a
rate cut by the ECB.
Some of those concerns eased slightly after German corporate sentiment unexpectedly rose in January, bolstering policymakers' assertion that the euro zone economy can withstand turmoil in financial markets.
"The numbers out of Germany were good. You are getting a follow through of what we saw overnight," said Brian Taylor, head currency trader ay M&T Bank in Buffalo, New York.
"They are consistently saying that growth is okay, there is going to be some effect from a U.S. slow down, but in their view they are saying the economy is going to be strong and
(inflation) is going to be an issue in terms of their monetary policy."
The New Zealand and the Australian dollars benefited from the improvement in risk appetite. These currencies are often targets of carry trades, a strategy in which investors borrow
in a low-yielding currency such as the yen to buy higher-yielding currencies and assets.
The Australian dollar rose against the dollar, as did the kiwi .
There was little reaction to a report showing that the pace of existing home sales in the United States fell by 2.2 percent in December to a slower-than-expected 4.89 million-unit annual rate. That confirmed market perceptions that the housing market turmoil, which is threatening to push the economy into a recession, is far from over.