LONDON (AFP) — The dollar dropped against the euro and the yen on Friday, as dealers tracked rising oil prices and fresh evidence of inflationary pressures in the eurozone and Japan.
The greenback also fell as dealers took profits ahead of a three-day holiday weekend in the United States, and monitored geopolitical tensions between Russia and the West.
In morning London deals, the European single currency rose to 1.4735 dollars from 1.4708 in New York late on Thursday.
Against the Japanese currency, the dollar dropped to 108.67 yen from 109.47.
Later Friday, the foreign exchange market will digest a batch of US economic data on consumer sentiment and manufacturing in August.
"The weather remains at the heart of the foreign exchange market, Tropical Storm Gustav's movements driving the oil market with attendant knock-on for the dollar," said Calyon analyst Daragh Maher.
"Geopolitical storms also threaten to push energy prices higher, with the UK media suggesting Russia may cut off energy supplies to Western Europe in response to growing tensions over Georgia."
Crude futures rebounded on Friday as Gustav risked becoming a hurricane once more and threatening energy production in the Gulf of Mexico, home to US refineries, traders said.
The foreign exchange market also digested news of lower-than-expected inflation data in the eurozone, but analysts warned that the European Central Bank would refrain from cutting borrowing costs for the time being.
Inflation in the 15 countries sharing the euro pulled back in August from a record high, offering an increasingly rare ray of light as the economy loses pace, official EU data showed on Friday.
Annual inflation in the euro countries fell to 3.8 percent from a record 4.0 percent in July amid cooling oil prices, according to a first estimate from the Eurostat data agency.
"This ... supports our view that the ECB will eventually cut rates pretty aggressively, although worries over the inflation outlook will keep the bank on hold for some months yet," said Capital Economics analyst Jennifer McKeown.
Meanwhile, the yen rallied against the dollar as inflation in Japan surged to a decade high, reviving talk of a future interest rate hike there, dealers said.
"The inflation figure caused some yen-buying since it was quite high. The markets reacted naturally," said Kenichi Yumoto, vice president of forex sales at Societe Generale.
Japan's core inflation surged to 2.4 percent in July as prices rose for the 10th straight month on the back of soaring energy and raw material costs, the sharpest increase since October 1997.
In London trading on Friday, the euro changed hands at 1.4735 dollars against 1.4708 late on Thursday, at 160.14 yen (160.90), 0.8053 pounds (0.8034) and 1.6145 Swiss francs (1.6156).
The dollar stood at 108.67 yen (109.47) and 1.0954 Swiss francs (1.0991).
The pound was at 1.8301 dollars (1.8285).
On the London Bullion Market, the price of gold eased to 837.47 dollars per ounce from 838.25 dollars late on Thursday.
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