NEW YORK -- The euro vaulted to a record peak against the dollar Wednesday as record high euro zone inflation and a sharp slide in U.S. home construction highlighted the divergent growth paths in the two economies.
The euro rose to $1.5968, according to Reuters data, the strongest since its 1999 launch, as data showing a record 3.6 percent advance in euro zone prices last month suggested the European Central Bank won't cut interest rates soon.
The outlook for the Federal Reserve was quite different, especially after reports showed a sharp slide in March U.S. housing starts and unexpectedly low consumer price inflation.
"Relative inflation rates and their policy implications is the theme of the day and is leading the euro charge toward $1.60," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut.
The Fed has already cut benchmark U.S. rates 3 percentage points since September and is widely expected to reduce them again, to at least 2 percent, when it meets on April 29 whereas euro zone rates have been at 4 percent for more than a year.
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Dollar weakness on Wednesday was broad, with the euro last trading at $1.5942, up 1 percent from late Tuesday. The dollar also fell 0.6 percent to 101.20 yen and 0.9 percent to 0.9979 Swiss francs. Sterling gained 0.7 percent to $1.9763.
A report showing an 11.9 percent plunge in new home starts last month was just the latest bit of bleak U.S. housing data, but traders said it was enough to shatter the guarded optimism that had been growing in markets in recent days.
"These housing starts suggest that the pace of decline is intensifying, which is the last thing the U.S. economy needs right now," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto.
Things could get messier for the dollar on Wednesday should Coca-Cola and eBay disappoint markets with their first-quarter earnings announcements.
Earlier, JPMorgan Chase & Co, the third-largest U.S. bank, said its quarterly profit fell 50 percent in the first three moths of the year, while the Wall Street Journal reported Merrill Lynch will reveal $6-$8 billion in write-downs when it releases results on Thursday.
"Some people think the worst of the banking problems is behind us, but poor earnings and more write-downs could have a hand in setting the market's direction," said Steve Barrow, chief currency strategist at Bear Stearns in London.
A report showing U.S. industrial output rose 0.3 percent in March, beating economists' forecast for a 0.1 percent decline, had little impact on currency prices.
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