The dollar touched a lifetime low against the euro yesterday after US Treasury Secretary Mr John Snow said the dollar's decline was "orderly", a comment dollar bears took as a green light to sell the currency, analysts said.
The euro reached a record high at the psychologically important $1.23 before drifting back to $1.2287, a gain of 0.64 per cent on the day.
Mr Ashraf Laidi, chief currency analyst at MG Financial in New York, said Mr Snow's remarks left markets thinking the US's strong-dollar policy was mere rhetoric and that the White House was, in fact, content to see further dollar losses.
The dollar had weakened earlier after a surprising drop in US consumer sentiment, in contrast to generally upbeat US economic data. The University of Michigan's preliminary reading of December consumer sentiment fell to 89.6 from November's final reading of 93.7. Economists had forecast a rise to 96.0.
Bank of Ireland Treasury and International head of domestic corporate sales Mr John Moclair said the dollar was currently weak across the board after also hitting an 11-year low against sterling yesterday.
"The dollar still looks vulnerable and sentiment towards it is still bad," he said.
Potential buyers of the currency were holding off to see how far it falls, while sellers appeared reluctant to hedge at current levels, he added.
The dollar had rallied earlier this week as investors sold euros to lock in profits on its nine-cent move higher against the greenback in the past five weeks.
At the start of US trade yesterday, the dollar trimmed modest losses after the October US trade gap data came in near estimates, confounding investors who expected worse and sold the dollar ahead of the report, only to buy it back again.
In October, the US trade deficit widened to $41.77 billion (€34.1 billion) versus an upward revision to $41.34 billion a month earlier.
Other data showed US inflation on the producer level fell unexpectedly in November, which carries a mixed message for the dollar. November's producer price index fell 0.3 per cent versus expectations of a rise of 0.1 per cent.
Falling inflation benefits US asset markets and is another reason why the Federal Reserve can leave interest rates low for the foreseeable future.
However, low US interest rates versus higher rates abroad mean there is less incentive to purchase the dollar.
