NEW YORK – The dollar dropped against the euro for the second day in a row as the U.S. government said wholesale inflation shot higher in July. Crude oil futures, meanwhile, jumped back above $114 a barrel, while the Dow Jones industrial average dropped about 130 points and bank stocks took more hits.

The 15-nation euro rose to $1.4768 in late New York trading from $1.4697 late Monday. The British pound climbed to $1.8660 from $1.8643, while the dollar slid to 109.82 Japanese yen from 110.17 yen.

Investing in oil futures has been a hedge against a sliding dollar. Oil's weekslong drop has helped the dollar look more attractive, though, and stoked its upward momentum. The dollar's drop today coincides with oil's leap higher.

The Labor Department said Tuesday that the prices producers pay climbed 1.2 percent in July, boosting the annual rate to the fastest pace in 27 years. Core prices, which leave out food and energy costs, rose 0.7 percent, more than three times what economists had expected.

“One thing that has undermined the U.S. dollar today has been U.S. data,” said Michael Woolfolk, senior currency strategist at Bank of New York Mellon Corp. “U.S. data has (been surprising) us on the upside, we've gotten used to it.”

On the housing front, the Commerce Department said that housing starts fell to 965,000 units in July, the smallest amount since March 1991. But that paltry showing still beat expectations, even as it underscored the housing sector's distress.

“The numbers only point in one direction: higher Fed interest rates. The problem is the timing. Those numbers are kind of impotent, and so is the Fed,” Joseph Trevisani, chief market analyst at FX Solutions. “The economy's simply not in a position where the Fed can raise rates.”

Higher interest rates can support a currency by giving investors higher returns, while containing inflation and weighing on economic growth. Cutting interest rates often sends currencies lower as investors look to transfer funds to higher-yielding assets.

In Europe, the ZEW index, which records investors' six-month expectations for the German economy, rose to negative 55.5 points in August from a 16-year low of negative 63.9 points in July, said Germany's Center for Economic Research, besting expectations.

Germany is the euro zone's largest economy.

While German investors seemed slightly more optimistic, the Dow fell 130.84 points Tuesday on inflation concerns and, said Woolfolk, renewed worries over Freddie Mac, Fannie Mae and the health of the financial sector.

The euro fell to the $1.50 mark for the first time in six months Aug. 8, after the European Central Bank dashed expectations that it might continue raising interest rates amid fears of a European slowdown. The Federal Reserve, which cut rates seven times from September until a “pause” in June, may eventually have to hike rates here, however, to combat growing inflation, analysts say.

In other New York trading, the dollar fell to 1.0630 Canadian dollars from 1.0640, and slipped to 1.0927 Swiss francs from 1.0978 francs.