Dollar declined vs euro

Dollar declined vs euro, yen to reverse much of its gains previous 2 days as oil prices rose to near-record levels on sharp drop in U.S. crude inventories; bigger-than-expected drop in inventories pushed oil over $138/bbl and prompted traders to buy euros, yen. "(Today's) oil spike played the initial role in pushing down the dollar," said Matthew Strauss, senior FX strategist at RBC Capital markets. Dollar also got hit by comments from Fed Vice Chairman Kohn, who downplayed inflation risks by urging patience with higher oil prices, saying some CPI should be permitted.
Risk aversion again came to fore, with low yielding currencies such as yen, Swiss Franc benefitting. Some analysts say dollar's losses probably also technically driven following big gains past few sessions. Late in New York, EUR/USD was at 1.5557 vs 1.5459 late Tuesday, USD/JPY 106.96 vs 107.31, GBP/USD 1.9635 vs 1.9538, USD/CHF 1.0321 vs 1.0419, EUR/JPY 166.43 vs 165.88.
Stocks dropped sharply on steep losses in financials, with Dow closing at lowest mark since Bear Stearns rescue of March 17; high oil prices also weighed. Washington Mutual fell 9%, Merrill Lynch declined 6.5%, Lehman Brothers plunged 14%. Dow down 1.7%, Nasdaq off 2.2%, Philly semicons off 3.4%. Treasurys recovered slightly from battering of past few days, with lower stocks helping. Comments from an ECB official downplaying scope of possible rate hikes also aided though persistent tough CPI talk from Fed officials capped gains; 2-year yield down 9.4 bp at 2.81%, 10-year down 2.4 bp at 4.08%. Nymex July crude rose $5.07 to $136.38/bbl on a surprising 4.6-million-barrel decline in U.S. oil inventories for week ended June 6. Comex August gold rose $11.70 to $882.90/oz on surging oil, weak USD as short-covering somewhat reversed recent selling.