In the currency market, the dollar got slammed against the euro. Late Wednesday, the euro was trading at $1.5741 vs. $1.5666 on Tuesday. News of the Iranian missile test put the buck on the defensive early, leading to a retreat into such perceived safe havens as the Japanese yen and the Swiss franc, said economists at ABN Amro.

But James Hughes, a currency strategist at CMC Markets, said the dollar weakness may be short-lived, as financial markets consider the possibility that commodities prices may have peaked.

“Obviously any change in events in Iran would shift the landscape somewhat, and with the hurricane season now underway these factors cannot be ignored either, but assuming there are no great surprises this afternoon and crude holds well below $140 a barrel, then there may be cause for the dollar to resume its strengthening trend,” Hughes said.

Meanwhile, euro fanciers took heed of words from ECB President Jean-Claude Trichet, who had previously insisted that the bank’s policymakers were maintaining a neutral bias on future interest-rate moves after last week’s quarter-point hike.

In a speech to the European Parliament, Trichet said consumer price inflation was likely to see only gradual moderation over the next year. Inflation across the euro zone, according to preliminary estimates, hit an annual rate of 4% in June, which is twice what Trichet considers the central bank’s comfort zone.

Source: Dollar Sells Off vs. Euro, Eurozone Inflation Well Above Target