British pound extends losses as unemployment jumps
The U.S. dollar declined Wednesday after a government report showed consumer prices rose more than expected last month, reducing fears that deflation could take hold in the U.S.
Activity may be limited as traders awaited the outcome of a two-day meeting of Federal Reserve policy makers.
The dollar index , a measure of the greenback against a basket of major currencies, fell to 86.345, from 86.861 in North American trading late Tuesday.
The euro rose to $1.3132 versus the greenback from $1.3013 late Tuesday.
U.S. consumer prices increased a seasonally adjusted 0.4% in February, the second increase in a row and the largest since July.
"With inflation still nonexistent, the U.S. dollar has sold off across the board," said Kathy Lien, director of currency research at Global Forex Trading.
The data are likely to have little bearing on Fed officials. After their last meeting in January, they expressed more concern about falling prices than inflation. See more about CPI report.
The Fed will release a statement on the committee's decision around 2:15 p.m. Eastern. Read more about the Fed's meeting.
The rate-setting Federal Open Market Committee is widely expected to hold its target borrowing rate to a range from 0.25 percent to zero. Many economists also expect the Fed to hold off on using one of its last weapons to get credit flowing -- buying back Treasury securities from the open market. See related article on Fed buying Treasurys.
A central bank buying its own country's securities raises the risk that it needs to print money to finance debt, leading to higher inflation.
The central bank is likely to downgrade its growth outlook, though possibly note that the pace of decline has moderated, said T.J. Marta, founder of financial research firm Marta on the Markets.
"A lower growth estimate and more talk of asset buying by the FOMC could keep the greenback under pressure," he wrote in a note.
The British pound extended losses after the U.K. Office for National Statistics reported a record monthly rise in the number of people claiming jobless benefits last month.
Sterling fell 0.5% versus the dollar to $1.3981. The euro rose 1.3% versus the pound to 93.91 pence.
Benefit claimants jumped 138,400 in February, while the January figure was revised up to 93,500. The February rise was the largest since records began in 1971. A forecast of economists by Dow Jones Newswires had produced an average estimate for February of a rise of 87,500.
When measured using International Labor Organization methods, unemployment jumped 165,000 in the November-to-January period to 2.03 million -- topping the 2 million level for the first time in a decade. The November-January unemployment rate rose to 6.5% from 6% in the previous three months.
Separately, minutes of the Bank of England's March meeting released Wednesday revealed the rate-setting Monetary Policy Committee unanimously backed the plan launched this month to embark on an unprecedented strategy of creating new money to purchase 75 billion pounds ($104 billion) worth of corporate and British government bonds in order to boost the money supply, increase nominal spending and avert a deflationary spiral.
That was in addition to a unanimous decision to cut the key lending rate to 0.5% from 1%.
Overall, the tone of the minutes indicated the MPC was unlikely to make further cuts in the lending rate, but was likely to expand efforts to ease monetary conditions by effectively printing money through the asset-purchase program, economists said.
"We remain pretty convinced that the BOE will double the size of asset purchases to 150 billion pounds," said Chiara Corsa, economist at UniCredit MIB.
The dollar fell to 98.32 Japanese yen from 98.55 Tuesday. The Bank of Japan left interest rates unchanged at 0.1% but said it would broaden purchases of government bonds to bolster liquidity.
