Dollar weakens on inflation report
The buck falls further against the euro and yen on spiking food and energy prices, and speculation that the Fed will not raise interest rates.
NEW YORK (CNNMoney.com) -- The dollar fell against most major foreign currencies Tuesday as a key inflation measure rose by its highest amount in 7 months, and whispers circulated that the Federal Reserve will not raise rates to combat rising prices.
In late afternoon trading, the 15-nation euro bought $1.5511, up from $1.5489 late Monday, but the British pound bought $1.9568, down from $1.9635.
The dollar traded lower against the yen, falling to ¥107.94, down from ¥108.12 late Monday.
The U.S. Labor Department reported Tuesday that its Producer Price Index (PPI) soared 1.4% in May, marking the biggest increase since November. Discounting volatile energy and food prices, the core PPI rose only 0.2% last month.
"The core rate of PPI was okay, but the top line of inflation was horrible," said Peter Cardillo, Avalon Partners chief market economist.
Cardillo said that even though the moderate monthly rise in core inflation showed most prices have stabilized, high food and fuel prices are still hurting American consumers in the pocketbook.
"You don't buy a computer or car every day, but you do buy milk, bread, and gas every day," he said.
On Monday The Washington Post reported that sources close to Fed chief Ben Bernanke have learned the central bank will not raise its key funds rate in an effort to stem the tide of inflation.
"If the Fed is not going to raise interest rates to combat inflation, that's going to put pressure on the dollar," said Cardillo.
Record oil prices and inflation continue to pressure the dollar against foreign currencies. If the Fed does not soon raise rates and oil speculators continue to artificially inflate the price of crude, Cardillo says, the dollar could reach its record-low levels against the euro from April, when the euro was trading above $1.60. 
