NEW YORK — The dollar eased against the euro and the pound Thursday as Greece announced additional salary cuts and tax hikes to deal with its ballooning deficit, while China reported a jump in inflation.
A steep rise in prices could force China to raise interest rates, which would slow one of the world's fastest-growing economies and thwart a global recovery.
Meanwhile, markets got little direction from mixed U.S. economic news. The government said its trade deficit unexpectedly shrank in January, while the number of newly laid-off workers filing claims for unemployment benefits slipped last week.
The 16-nation euro edged up to $1.3673 in late trading in New York from $1.3652 late Wednesday as the Greek government announced an additional $6.56 billion in savings through public sector salary cuts, hiring and pension freezes and consumer tax hikes. The cutbacks, added to a previous $15.24 billion austerity plan, were made under intense pressure from the European Union to quickly show fiscal improvement.
The dollar has surged against the euro this year as debt troubles in Greece and several other countries that use the 16-nation euro have roiled markets, threatening the stability of the region's monetary union. Last November, the euro traded above $1.51.
Also Thursday, a leading German think tank said it expects the country's economy, Europe's biggest, to contract in the first quarter because of an unusually harsh winter. The IfW group said the economy should make up for the expected contraction in first-quarter gross domestic product during the rest of 2010.
Analysts say markets will be watching closely as the Federal Reserve announces its decision on interest rates next week. The central bank has continued to say that it will leave its key rate at the current level near zero as the economic recovery from the recession remains weak.
Higher interest rates can boost a currency as investors transfer funds to where they can earn higher returns.
"Expect a more negative week for the U.S. dollar as the Fed (meeting) confirms that rate hikes are not on the agenda for now and as a positive fiscal progress report from Greece eases concerns over the euro and rekindles risk appetite," Brown Brothers Harriman analysts wrote in a note to investors.
The British pound rose to $1.5047 from $1.4973 late Wednesday, while the dollar was slightly higher at 90.60 Japanese yen, compared with 90.54 yen. The U.S. currency also fell to 1.0691 Swiss francs from 1.0706 francs, and dropped to 1.0252 Canadian dollars from 1.0264. (AP)