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The dollar was soft on Thursday, bruised by worries over rising tension in the Middle East and as subdued U.S. economic data helped keep U.S. bond yields down.
The greenback fell on Wednesday after Israel said two Iranian warships planned to sail through the Suez Canal en route to Syria, calling the step a "provocation".
The news rekindled fear that a regime change in Egypt could make the entire region unstable.
Although the dollar has tended to be bought at times of crisis in the past, the market's knee-jerk reaction was to sell the dollar.
U.S. industrial output data fell short of market expectations, one day after retail sales data disappointed investors.
The minutes of the Federal Reserve's previous policy meeting suggested the bank remained unhappy with the job market's recovery and the consensus was still firmly aligned with completing the planned purchase of $600 billion in government bonds.
"Although rising inflation in the world has led some investors to speculate there could be a rate hike by the Fed, such expectations will likely prove to be premature", said Junya Tanase, a strategist at J.P. Morgan Chase Bank. "The risk of inflation varies from country to country. In the United States, inflation is still not an imminent risk and U.S. interest rates are starting to tick down. That's capping the dollar," Tanase said.
But traders also said the greenback's fall is seen as being limited as the euro suffers from lingering worries over debt.
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