The dollar fell to a two-month low against a basket of currencies and a one-year low against the euro today after US producer prices unexpectedly fell in March.
This boosted expectations that the Federal Reserve is near the end of its rate hiking cycle.
The producer price index (PPI) for final demand dropped 0.5% last month.
In the 12 months to March, the PPI increased 2.7%. That was the smallest year-on-year rise since January 2021 and followed a 4.9% advance in February.
It comes after consumer price index inflation data yesterday came in at 5% year-on-year in March, down from 6% in February.
Core inflation - which strips out volatile food and energy prices - picked up to 5.6%, from 5.5% the previous month.
"We are headed back to a low inflation world, that's the message of the market right now," said Adam Button, chief currency analyst at ForexLive in Toronto. "The next big trade is that the inflation scare is over."
The dollar index fell to 100.86, the lowest since February 2. The euro reached $1.10660, the highest since April 1, 2022.
The single currency is being boosted by a relatively more hawkish European Central Bank that is expected to keep raising rates to tackle inflation.
"We have seen a dramatic swing in interest differentials in favour of the euro," said Ben Laidler, global markets strategist at eToro.
"The combination of falling US inflation and rising recession risks have driven expectations of three Fed interest rate cuts this year compared to further hikes from the still-hawkish ECB," he said.
Fed funds futures traders are pricing for the Fed's benchmark rate to peak at 5.002% in June, from 4.830% now, before falling back to 4.278% in December.
The next major US economic release will be retail sales on Friday, which will be analysed for how inflation is affecting consumer spending.
Other data today showed that the number of Americans filing new claims for unemployment benefits increased more than expected last week, a further sign that labour market conditions were loosening up as higher borrowing costs dampen demand in the economy.
The dollar fell 0.80% against the yen to 132.13. The Aussie dollar, which is sensitive to risk appetite, gained 1.05% to $0.6765.
Australian employment blew past expectations for a second month in March while the jobless rate held near 50-year lows, an unambiguously strong report that suggests the central bank's tightening campaign may not be over yet.
Meanwhile, Britain's pound hit a 10-month high of $1.253. It was last up 0.2% at $1.251, on track for its third daily gain in a row.
Data out today showed the British economy stagnated in February as strikes by public sector workers hit output.
And the dollar fell to a 26-month low against the Swiss franc at 0.8898. The franc is traditionally seen as a safe haven at times of stress.
John Hardy, head of FX strategy at Saxo Bank, said he expected the dollar to grind lower from here as inflation cools and the economy slows.
"It encourages dollar weakness, as long as we don't get a major recession or a major reheating," Hardy said. "Nothing massive, we're just looking for an extension of the weakness."
