NEW YORK: The euro pulled higher against the dollar and the yen on Wednesday as concerns about a missile strike in Poland eased but the dollar gained some support from stronger-than-expected US retail sales data.

The market reversed from Tuesday’s risk-off shock after Poland and NATO said on Wednesday that the previous day’s explosion, which killed two, was probably from a stray fired by Ukraine’s air defenses and not an intentional Russian strike, easing fears the Russia-Ukraine war could spread beyond Ukraine.

The euro was last 0.33% higher at $1.0386 but still below the four-and-a-half month peak of $1.0481 it touched Tuesday when US producer price inflation data was below expectations. The euro also erased Tuesday’s losses against the yen, last up 0.44% against the Japanese currency.

Tuesday’s US data had suggested last week’s cooler-than-expected consumer price inflation was not a one-off, fueling hopes that the US Federal Reserve can slow aggressive rate hikes that had sent the dollar soaring against the pound, euro and yen this year.

Then on Wednesday the Commerce Department said that October retail sales rose 1.3% compared with economist expectations for 1.0%, with estimates ranging from a 0.1% drop to a 2.0% jump.

“We came into this morning’s session with a little afterglow from NATO’s pronouncement that the projectile that hit Poland was probably Ukrainian anti-aircraft fire. That allowed equities futures to rally and the risk aversion that propped up the dollar yesterday to wane,” said Greg Anderson, Global head of FX strategy BMO Capital Markets.

And with Wednesday’s data boosting US Treasury 2-year yields, this provided some support for the dollar, according to Anderson. “The impulse is bets for slightly higher US rates.”

Elsewhere, data released on Wednesday showed inflation in Britain - in contrast with the United States - continues to rise, hitting a 41-year high in the 12 months to October.

After rising earlier, Sterling was last down 0.2% at $1.1844.

Britain is set to announce a new budget on Thursday with expectations for tax hikes and spending cuts. The pound fell to a record low of $1.0327 in September after finance minister Jeremy Hunt’s predecessor Kwasi Kwarteng announced a package of unfunded tax cuts.

The dollar was up 0.07% against the Japanese yen at 139.405, compared with Tuesday’s two-and-a-half-month low of 137.67.

The dollar index, which tracks the greenback against six main peers, was recently 0.06% lower at 106.342 after earlier hitting a low of 105.859.—Reuters