The dollar gained modestly today after staging a steep fall the day before as investors awaited the Federal Reserve minutes from its May policy meeting for more insight on when US rates may peak.
The greenback made its biggest daily loss against a basket of currencies since early January yesterday after the nomination of Goldman Sachs Chairman Henry Paulson to succeed John Snow as Treasury Secretary did little to dispel the notion that Washington favors a weaker dollar.
Ahead of the Fed minutes, which were due for release at 6pm (Irish Time), traders were loath to keep selling the dollar, and with the month-end looming, money managers were busy balancing their currency portfolios, which was helping the US currency retain its gains.
The euro got a boost earlier in the session from euro zone inflation data which supported the view that the European Central Bank will raise rates by at least 25 basis points when it meets next week.
The Fed, which has raised rates at 16 consecutive policy meetings since mid-2004 to 5 per cent, is seen to be in the difficult position of having to weigh the risk for higher inflation and concern over a slowdown in the housing sector.
So today's minutes will be scoured for clues into the central bank's willingness to raise rates by another 25 basis points in late June or take a breather.