The dollar bounced back sharply this evening after comments from senior European Central Bank officials appeared to change market assumptions that euro zone interest rates would only remain unchanged or go higher.
Luxembourg central bank head Yves Mersch, who sits on the ECB governing council, was reported as saying that there were mitigating factors on inflation, suggesting that the ECB could be softening its position.
Up to now ECB chief Jean-Claude Trichet has been highlighting the risk of inflation as a continuing danger that must be kept in check at all costs - including higher interest rates if necessary.
Currency dealers said Mr Mersch appeared to confirm remarks earlier from German central bank head Alex Weber, suggesting to some that the ECB could be preparing the markets for a change in its interest rate stance.
Speaking earlier on German inflation data, Weber had said the bank was watching price movements 'with concern', but warned against overstating recent price increases. The euro weakened to just under $1.4650, having been as high as $1.49 earlier in the week.
