The euro dropped to a post-intervention low, crashing through the psychological $0.86 level yesterday as a recovery in US share prices fuelled renewed demand for the US currency, dealers said.
With crisis raging in the Middle East, the single currency remained unable to acquire safehaven status and, at its worst, slipped off $0.8529, almost one cent down on the day.
It later recovered marginally to finish the US trading day at $0.8532.
Against sterling, it finished the US session at 58.76p.
Foreign exchange markets shrugged off the possibility of another round of intervention to support the ailing euro, despite the comments of European Central Bank president Mr Wim Duisenberg on Thursday.
He said the euro had bottomed out and was heading up, while not ruling out fresh intervention if needed.
In the European afternoon, the single European currency traded at $0.8570, compared to $0.8626 in New York on Thursday evening.
The dollar was buying 107.67 yen compared to 107.68 yen on Thursday in New York.
This latest bout of euro weakness against the dollar was a "continuation of what we have seen for a long time now", said Mr John Chapman, a strategist at Standard Chartered.
Traders preferred to buy the dollar despite the heavy falls on Wall Street in the previous session. The fall in the euro coincided with rises on the US Dow Jones Industrial Average and the Nasdaq stock indices. Market operators preferred to focus on picking up bargain stocks in US share markets after recent tumbles and were less worried about the mayhem in the Middle East, which had pushed up oil prices to 10-year highs in the previous session and which threatened world growth, analysts said.
Falls on US equity markets had not been enough to reverse the flow of funds from Europe into the US, which had been a major factor behind the euro's weakness, they said.
Moreover, the prospect of a concerted intervention to prop up the euro was seen to be receding. "The US has other problems on its mind than to support the euro in the short term," said Mr Chapman.
But he was surprised the dollar had not reacted more strongly on the back of stronger-than-expected US prices data and added that the market had opted to interpret the strong retail sales figures as signs of continuing robust growth in the US economy.
Strong price increases would normally cause concern that the US Federal Reserve would raise interest rates to head off inflationary pressure.
US data showed a 0.9 per cent rise in headline retail sales in September compared to a 0.5 per cent consensus forecast.
