Dollar Tumbles as Euro Surges on Inflation Worry

The U.S. dollar slid against major currencies in late New York trading on Wednesday as the high oil price raised the risk of inflation and expectations of interest rate hike in euro zone.

The concerns that oil supply may be disrupted by unrest in Libya continued to push up the oil price recently. U.S. oil price settled above 100 U.S. dollars a barrel on Wednesday, first time since September 2008, raising concerns that the inflation in oil might spread to other commodities and trigger inflations in a wider range.

Moreover, euro-zone data released on Wednesday intensified that concern. The producer prices in the euro zone saw a 1.5-percent monthly rise in January and were up 6.1 percent compared to January 2010, suggesting the inflation in basic materials for productive use was emerging.

The Fed's Beige Book indicated on Wednesday that some manufacturers and retailers have passed through higher costs to customers or intend to do so in the near future, also raising inflation worries.

Most investors expected a quicker action by the European Central Bank (ECB) than the Federal Reserve to curb the inflation as Fed Chairman Ben Bernanke said in a testimony to the Congress on Tuesday that the inflation in U.S. was "relatively moderate", and that the Fed would continue its quantitative easing policy for a period of time.

The ECB will meet on Thursday to discuss monetary policies. It is expected that policy makers may take steps to set stages for an interest rate hike in coming months.

The euro surged on the strong expectation among investors. It reached 1.3860 against the greenback in late trading session on Wednesday.

Meanwhile, a separate report on Wednesday showed that the U.S. private employment rose 217,000 in February, showing that the employment condition in private business was recovering. However, the upbeat news failed to support the dollar.

The dollar index fell to 76.723 from 77.049 late Tuesday.

In late Wednesday trading, the dollar bought 81.91 Japanese yen, comparing with 81.95 late Tuesday, and the euro rose to 1.3860 dollars from 1.3770.

The British pound also rose to 1.6325 dollars from 1.6262. The dollar fell from 0.9303 to 0.9240 against Swiss francs, and also fell to 0.9719 Canadian dollars from 0.9749.