The euro tumbled again yesterday as markets ignored an expected hold on euro-zone interest rates and concentrated on gloomy data from Germany and France, the zone's two largest economies.
At its worst, the euro slipped to another six-month low of $0.8567 against the dollar before recovering to close at 86 US cents.
It also fell against the yen. The currency is now 10 per cent below its year high against the dollar.
Few economists were surprised by the decision of the European Central Bank's (ECB) governing council to hold interest rates at 4.5 per cent following a quarter point cut at its last meeting, given its avowed priority of containing inflation.
The announcement was made yesterday, a day earlier than normal, because of a holiday today in some euro-zone countries.
Yesterday's euro slump was spurred by gloomy economic data from Germany and France.
Europe's largest economy expanded by only 2 per cent from January to March, the lowest growth rate in almost two years.
It marks the third consecutive quarter of below-trend growth in Germany, caused by a decline in capital investment and stagnating private and public consumption.
Further pressure on the euro came from France, where economic data showed the economy grew by a disappointing 0.5 per cent in the first three months of the year.
Until yesterday, economists viewed the French economy as a beacon of hope in Europe because it was the only one of the world's top five economies to show growth at or above trend for more than one quarter.
The slower growth showed that France, the motor of eurozone growth for the past three years, was being affected more seriously than expected by the weakening German economy and events across the Atlantic and in Japan. Economists yesterday blamed disappointing data on cutbacks in corporate spending.
"The main reason the ECB didn't cut rates again is the price data we got today. There is not enough bad news to force a cut now," said Mr Ralph Solveen, senior economist at Commerzbank.
The bank is not just "afraid of a cooling down of the economy", he said, but also of "inflation well over the 2 per cent target".
Consumer price inflation in the euro zone remains stubbornly above the ECB's own target ceiling of 2 per cent. In April, inflation rose 0.3 per cent to 2.9 per cent, making ECB officials more reluctant to bow to international pressure and agree another cut in interest rates, at least in the short term.
Many analysts say markets will have to wait until June or July for another cut, with the ECB hoping to be able to tread a thin line in coming weeks between preventing a rise in inflation expectations and acting on further signs of economic weakness.
