Dollar Falls Against Euro, Pound And Yen

NEW YORK -- The dollar fell against the euro, pound and yen Wednesday as consumer prices continued to drop, paving the way for more interest-rate cuts at home. Meanwhile, European bankers suggested more rate cuts were in the works as well, and stocks sank.

The 15-nation euro inched up to $1.2602 in late New York trading Wednesday from $1.2579 late Tuesday, coming off an overnight high of $1.2814 as U.S. stocks recoiled. The Dow Jones industrials fell below the 8,000 mark for the first time since 2003.

The British pound rose to $1.5025 from $1.4916, while the dollar slipped to 96.37 Japanese yen from 96.46.

The U.S. Labor Department said Wednesday that its index of consumer prices fell by 1% in October, the largest one-month drop since 1947, when record-keeping began.

On Tuesday, the government released its producer price index. Wholesale prices in October fell 2.8%, a record drop.

Falling prices give the Federal Reserve room to cut interest rates as worries about inflation subside. Cutting interest rates can spark economic activity but currencies often suffer as investors move their money in search of better returns.

"This week's CPI and PPI data keeps the door wide open for further Fed rate cuts over the next several meetings," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon (BK Quote) in New York.

Speaking in London Tuesday evening, European Central Bank President Jean-Claude Trichet said he wouldn't exclude decreasing interest rates further as long as the bank has confirmation that risks to price stability are easing.