Wednesday May 14, 09:14 PM
Dollar gains as inflation rises less than expected
NEW YORK (AP) - The dollar rose against most of the other major currencies Wednesday as new data showed lower-than-expected U.S. inflation in April.
The surprise reading helped send the Dow Jones industrial average up almost 125 points in late afternoon trading and increased currency investors' appetite for risky 'carry trades' -- borrowing currencies from countries with low interest rates, such as Japan, and investing the funds in higher-yielding assets.
In late New York trading, the 15-nation euro fell to $1.5461 from $1.5480 late Tuesday. The British pound declined to $1.9441 from $1.9459.
The dollar surged to 106.38 Japanese yen from 105.26 yen, and rose to 1.0567 Swiss francs from 1.0528 francs.
The franc and yen tend to trade inversely to the market -- they fall against the dollar when investors' risk appetite improves, and rise when investors are wary.
The Labor Department showed an easing of inflation pressures last month, which might make it easier for the Federal Reserve to continue cutting interest rates.
A 0.2 percent reading for the overall April Consumer Price Index was below the March level of 0.3 percent and slightly lower than the 0.3 percent rise that economists had been expecting.
A 0.1 percent rise in core inflation -- which excludes food and energy -- was below the 0.2 percent reading that had been expected, and lower than the 0.2 percent gain in March.
The Fed, fighting a severe credit crunch and economic weakness, has cut interest rates seven times since last September in an effort to keep the country from toppling into a recession. While lower rates are used to stimulate an economy, they can depress the value of a currency by lowering rates of return on deposits made in them.
In the euro zone, high inflation means the European Central Bank has been wary of cutting its key interest rate from 4 percent.
In other late trading in New York, the dollar edged down to 1.0031 Canadian dollars from 1.0033 late Tuesday.
Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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