The dollar dropped sharply versus the euro Thursday morning, nearing its lowest levels of 2011, as Euro zone inflation data cemented expectations the European Central Bank will raise interest rates next week.
Markets had priced in a rate hike earlier this month, but more recent concerns about Europe's sovereign debt problems had some traders hedging their bets. However, with the ECB insisting all along that it has laser-like focus on price stability, today's data strongly suggests that a tightening cycle will begin next Thursday. The dollar dropped to $1.4220 versus the euro, nearing a 4-month low of $1.4247 set earlier in March.
Euro zone consumer price inflation accelerated further to a 29-month high in March, breaching the ECB's target for the fourth month, official data showed Thursday. Annual inflation rose to 2.6 percent in March, according to a flash estimate published by Eurostat, the statistical office of the European Union. The dollar steadied versus the sterling, improving to $1.6070 from $1.61650.
There was little movement versus the yen, with the dollar clinging to this week's gains. The buck fetched Y82.85, having moved away from a record low of Y76.30 set during the days immediately following Japan's earthquake and tsunami.
Looking at today's economic calendar from the U.S., traders might focus on the customary jobless claims report for the week ended March 27, slated for release by the Labor Department at 8.30 a.m ET. Economists expect claims of around 383,000 for the week.
At 9.45 a.m. ET, traders will turn their attention to the results of the Institute of Supply Management-Chicago's business survey for March. Economists expect the business barometer index based on the survey to edge down to 69.5.
At 10.00 a.m ET, the Commerce Department will release its report on factory goods orders for February. Economists estimate factory good orders for the month to increase by 0.4 percent.