Dollar mixed on oil, inflation
U.S. currency trades lower against euro - but higher against pound and yen - as oil spikes. Fed reports that inflation may settle, and peaks of high prices are over.
NEW YORK (CNNMoney.com) -- The dollar traded mixed against foreign currencies Wednesday as investors weighed rising oil prices with the possibility that inflation is coming under control.
The euro rose against the dollar, trading up from the six-month low it hit Tuesday. A euro bought $1.4722, up from $1.4655 in the previous session.
"After reaching a six-month high, it's normal for the markets to pull back a bit," said Antonio Sousa, senior currency strategist with Forex Capital Markets.
But the dollar gained against the British pound and Japanese yen. The British currency bought $1.8347, down from $1.84 late Tuesday. That's a new 25-month low for the pound, which has slipped on signs of a struggling U.K. economy.
Against the Japanese yen, the dollar rose slightly to ¥109.62 from ¥109.61.
"The rapid weakening of the economy outside of the United States has been the main driver of dollar strength," said Sousa. "But despite the recent strength, the greenback is still very cheap when you look back five to seven years."
The dollar fell against the benchmark euro as oil prices moved higher Wednesday, renewing inflation concerns in the United States. Tropical Storm Gustav approached the Gulf of Mexico and the government reported a decline in crude and gasoline supplies, sending crude prices up $1.88 to $118.15 a barrel at Tuesday's close.
Atlanta Fed President Dennis Lockhart also suggested inflation remained a worry in a speech Wednesday morning. But Lockhart said high prices have possibly peaked, which have helped bring down dollar-traded commodities, such as oil and gold. He added, however, that if prices don't moderate as expected, inflation expectations could become "unmoored."
"The Fed is still concerned that the recent spike in economic activity is mostly because of short term spending from the economic rebates," said Sousa. "But the Fed may hike interest rates in the next few months, which has helped the dollar move higher." 
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