Investing.com - The euro rose against the dollar on Wednesday, but remained close to the seven-month trough set in the previous session as diverging monetary policy expectations for the Federal Reserve and the European Central Bank weighed.
EUR/USD rose 0.31% to 1.0673, pulling back from Tuesday’s lows of 1.0629, the weakest since April 16.
Demand for the dollar continued to be underpinned by expectations that the Fed will hike interest rates as soon as next month.
In contrast, the ECB is expected to expand its quantitative easing program and possibly cut rates further into negative territory at its December meeting.
The common currency also remained under pressure amid concerns that the terrorist attacks in Paris could undermine the already fragile economic recovery in the euro zone.
Data on Tuesday showing that U.S. inflation rose in October following two straight months of declines hardened the view that the economy is on a strong enough footing for higher interest rates.
The Commerce Department said the annual rate of inflation rose 0.2% last month, while consumer prices were also up 0.2% from a month earlier.
The dollar gave up some of its recent gains overnight as U.S. Treasury yields slid amid an increase in safe haven demand after a bomb scare in Germany triggered fears of another attack just days after the deadly terror attacks in Paris.
The euro gained ground against the yen and the pound, with EUR/JPY up 0.18% to 131.6 and EUR/GBP rising 0.19% to 0.7007.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, slid 0.17% to 99.55, not far from Tuesday’s highs of 99.84, the strongest since April 13.
Investors were looking ahead to the minutes of the Fed’s October meeting, due out later in the day, for further indications on the prospects for a December rate hike.
Meanwhile, U.S. data on housing starts and building permits would give some perspective on the strength of the housing sector.