The euro reached yet another high against the dollar today, trading at $1.55 for the first time since its launch.
The weakness in the dollar came on the back of strong euro zone economic data that renewed focus on the divergent paths of European and US interest rates.
The dollar had rallied sharply the previous session after the Federal Reserve said it would lend primary dealers $200 billion in Treasury securities and accept a wider array of mortgage debt as collateral to help ease tight credit markets.
But those gains fizzled out in European trade as the dollar plunged by 1 per cent versus the yen. The euro soared to $1.55, according to Reuters Dealing data, after euro zone data showed industrial output rose by much more than expected in January.
That bolstered the view that the European Central Bank need not rush to cut interest rates. The Fed, though, is still seen cutting its benchmark rate at a March 18th meeting despite its efforts on Tuesday to improve financial market liquidity.
"We're getting a reality check today," said Matthew Strauss, senior FX strategist at RBC Capital Markets in Toronto. "The market is realizing that the strength of recent euro zone data suggests the ECB is right to hold rates and focus on inflation."
Meanwhile, he said the Federal recent move to get money flowing in financial markets "addresses short-term liquidity issues but doesn't address underlying credit concerns and the U.S. housing decline, which have not gone away."