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.
Analysts said news that U.S. consumer prices rose 0.2 percent in April, less than the 0.3 percent gain Wall Street analysts expected, did not change market perceptions that the Federal Reserve's interest rate cutting-campaign was almost over.
The consumer price index rose 0.3 percent in March.
"The direct nominal rate implications are dollar negative, and that is the way the market has traded off this number," said Alan Raskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut.
"However, I do not think that this reaction will be sustained, not least because it is hard to make the case that having a central bank with greater freedom to respond to growth weakness is ultimately negative for the currency."
The euro was last trading down against the dollar, pulling back from earlier lows at $1.5397. Earlier, it rose to a session high of $1.5486.
The dollar trimmed gains versus the yen and was last trading higher against the Japanese currency after touching a peak of 105.44 yen in overnight trade.
Speculation the Fed is done with cutting borrowing costs, having slashed its key lending rate by 325 basis points to 2 percent since mid-September, has supported the dollar and analysts said this view had not changed.
U.S. interest rate futures showed the market has begun to price in the possibility that the Fed may even raise borrowing costs at the end of the year, pushing Treasury yields higher and boosting the appeal of U.S. debt.
"The data is not going to add to the scenario already engrained in the market...that we are done cutting rates," said Marc Chandler, senior currency strategist at Brown Brothers Harriman in New York.
"The euro is carving out a top. We ran out of steam earlier this week at 1.5570. It looks like we are having a broadly sideways move to the euro. We need to get 1.5570 in order to signal a move to 1.57."
Sterling slumped to a near three-month low against the dollar after the Bank of England, in its quarterly inflation report, said British prices would shoot up this year, which many believe may delay interest rate cuts.
If British inflation continues to heat up, this will have a negative impact on the broader economy while keeping the central bank wary of cutting rates, which often promotes growth.