Dollar dips against euro in Asian trade

The dollar slipped against the euro in Asian trade on Wednesday amid doubts about the chances of a series of US interest rate rises this year to quell inflation, dealers said.
The euro firmed to 1.5519 dollars in Tokyo morning trade from 1.5508 in New York late on Tuesday.

The dollar was flat at 107.93 yen. The euro gained to 167.43 yen from 167.39.

Despite a sharp rise in US wholesale prices, traders were unsure whether the US central bank will embark on a series of rate hikes given sluggish growth in the world's largest economy.

Markets are now reassessing their view after being too quick to bet on US rate hikes, said Hideaki Inoue, chief forex manager at Mitsubishi UFJ Trust and Banking Corporation.

"They were expecting the Fed to raise rates two or three times this year. But due to continuing slow economic conditions, the Fed will find it difficult to boldly raise rates," he said.

US wholesale prices leapt a surprisingly strong 1.4 percent in May, the strongest surge in six months, but a closely watched "core" inflation rate stripping out energy and food remained tame, government data showed Tuesday.

US housing starts fell 3.3 percent in May as industrial production declined a larger-than-expected 0.2 percent compared with April, suggesting the economy is still being pressured by the fallout from the mortgage default crisis.

The dollar's fall was capped by remarks from central bank officials downplaying expectations for higher borrowing rates in the eurozone and Britain as economic conditions sour, dealers said.

British inflation hit a 16-year high of 3.3 percent in May, driven by soaring food and energy costs prices, figures showed Tuesday.

But Bank of England governor Mervyn King in a letter to finance minister Alistair Darling suggested that the breach of the 3.0 percent inflation target would not be trigger the central bank to raise rates aggressively.

British interest rates will be left on hold until early 2009 but the Bank of England "may have to cut rates more deeply than the market is currently pricing to revive the UK economy," Barclays Capital analysts wrote in a note to clients.

Meanwhile European Central Bank board member Lorenzo Bini Smaghi indicated that a 25-basis point rate hike could be enough to bring inflation down to the bank's inflation target of 2.0 percent in the eurozone, dealers noted.

Traders are waiting for quarterly results from US investment bank Morgan Stanley due Wednesday, after better than expected earnings at Goldman Sachs.