LONDON, Feb 20: The dollar picked up some lost ground on Wednesday after higher-than-expected US inflation data undercut the accepted view that the US central bank will be able to continue cutting interest rates sharply.

In late European trade, the euro was at $1.4666, down from $1.4725 in late New York deals.

The dollar was at 107.99 yen, up from 107.76 yen.

“This rebound in (US) inflation couldn’t have come at a worse time for the Federal Reserve,” said Paul Ashworth, senior US economist at Capital Economics.

“Persistently high inflation could take away the Fed’s flexibility to respond more aggressively to reduce borrowing costs, just at the time it needs that flexibility the most (to help out the slowing economy,” Ashworth said.

The dollar also got some support from US housing starts figures, they said.

The pound sterling was particularly badly hit by the stronger dollars as players took the record of the Bank of England’s last policy meeting to mean interest rates were likely to come down further.

The currency has been on the back foot all week, with the nationalisation of ailing mortgage lender Northern Rock adding a new sense of uncertainty at a time when the overall economy is predicted to slow rapidly.

In Europe on Wednesday, the euro changed hands at $1.4725 against $1.4725 late on Tuesday, at 158.34 yen (158.69), 0.7561 pounds (0.7558) and 1.6129 Swiss francs (1.6112).

The dollar stood at 107.99 yen (107.76) and 1.1001 Swiss francs (1.0939). The pound was at 1.9400 dollars (1.9483).

On the London Bullion Market, the price of gold was $920 an ounce, down from $924 late on Tuesday.—AFP