Dollar losses accelerate after Fed minutes; Euro higher after Ifo (MarketWatch) (22-05-2008)

SAN FRANCISCO (MarketWatch) -- The dollar declined on Wednesday, crude futures surged, a better-than-expected German sentiment reading was issued and worry was rekindled about U.S. growth and inflation by minutes of the last Federal Reserve interest rate-setting meeting.

In its latest forecast, the Fed forecast headline inflation, measured by the personal consumption index, to spike to a range of 3.1% to 3.4% this year, up from its previous forecast of 2.1% to 2.4% in January, while slashing its estimate for growth. The economy, as measured by the output of goods and services, is likely to grow a slim 0.3% to 1.2% this year, down from the previous forecast of a 1.3% to 2.0% rate, the Fed said.

The dollar was also pressured by surging crude-oil futures, which broke through another key level on Wednesday, topping $133.50 a barrel.

The euro was worth $1.5791, up from $1.5735 in London Wednesday and $1.5647 in late Tuesday's North American trading.

The dollar bought 102.97 yen, down from 103.63 yen, and 1.0249 Swiss francs, down from 1.0372 Swiss francs Tuesday.

The British pound reversed earlier losses and was last buying $1.9719, up from $1.9660 in London Wednesday and $1.9679 late Tuesday.

Signs of resilient business sentiment in Germany, Europe's largest economy, sent the euro higher across the board Wednesday, underlining ideas the European Central Bank will further delay any cuts in interest rates.

The closely-watched business climate index produced by the Ifo Institute at the University of Munich rose to 103.5 in May, partly erasing its April decline to 102.4 and exceeding a consensus forecast for a decline to 101.9. Current conditions and business expectations indexes also rose, similarly defying expectations for further deterioration.

The Ifo data led markets to further dismiss the possibility of any cuts by the ECB in coming months despite signs of significant economic weakening elsewhere in Europe, analysts said.

The move propelled the euro through important technical resistance around $1.5720, said Daragh Maher, currency strategist at Calyon.

  SourceMarketWatch