NEW YORK – The dollar fell to an 18-month low against the euro Wednesday, the day before the European Central Bank meets to set interest rates.
Analysts don't expect the central bank to raise rates Thursday, but investors will be watching European Central Bank President Jean-Claude Trichet's news conference for clues about when the next rate hike will be.
Analysts expect two more rate hikes this year, but when they will happen is uncertain. Last month, the European Central Bank raised its refinancing rate to 1.25 percent from 1 percent.
Chris Walker, a currency strategist at UBS said in a research note that two more rate hikes are expected "to come sooner — in July and October," instead of later in the year, as previously thought.
Central banks raise interest rates to curb inflation. Higher rates also tend to increase demand for the currency linked to that country or region. The expectation that the U.S. Federal Reserve will keep interest rates low has weighed on the dollar.
A rate hike by the European Central Bank is expected in the next couple of months despite ongoing debt problems in the region. Portugal is said to be receiving a 78 billion euro ($155 billion) bailout making it the third European country to receive a hefty financial aid package following Greece and Ireland.
The euro rose to $1.4849 late Wednesday, up from $1.4821 Tuesday. Earlier, the euro was worth $1.4942 — its highest point since December 2009.
Also pushing the dollar lower Wednesday were weaker-than-expected economic reports.
The Institute for Supply Management said that the economy's service sector grew last month at the slowest pace since August.
The private trade group said its index of service-sector activity dropped to 52.8 in April, down from 57.3 in March and a five-year high of 59.7 in February. A reading over 50 indicates expansion.
Meanwhile, private payroll processor ADP said that 179,000 new private sector jobs were added in April, far less than expected. The report comes before the U.S. government issues its monthly jobs report for April on Friday.
In other trading Wednesday, the British pound rose to $1.6517 from $1.6467 late Tuesday. The dollar fell to 80.58 Japanese yen from 80.91 Japanese yen and rose to 95.77 Canadian cents from 95.39 Canadian cents.
The dollar fell to 0.8600 Swiss franc from 0.8618 Swiss franc. The dollar fell to a new all-time low against the Swiss franc Wednesday, falling below Tuesday's record by touching 0.8551 Swiss franc earlier in the day.