The euro fell to an eight-month low against the dollar today after a fall in euro zone retail sales and figures confirming negative growth fuelled the possibility that the region may be veering towards a recession.
Figures confirmed that the euro zone economy shrank 0.2 per cent in the second quarter from the first, marking the first quarterly decline since the data series began in 1995.
Along with a surprising 0.4 per cent drop in regional retail sales, the data added to the view that growth is slowing even as inflationary pressures nag the economy.
The euro dropped on the announcement to hit $1.4386, its lowest since January and approaching $1.4643, the pair's lowest level of the year.
The dismal figures helped the dollar extend its winning streak and the US currency soared to an 11-month high against a basket of major currencies as investors increasingly put faith in the US unit amid a deteriorating global economic backdrop.
"The euro had been under pressure for most of the day ... and the retail sales have led to more of a collapse," said David Page, economist at Investec, adding that the euro may stay under selling pressure as it would likely be difficult for the economy to recover from slowing growth.
"There's more trend deterioration in the euro zone, i.e. a recession in the third quarter," he said.
Supporting the dollar at the expense of high-yielding currencies was a fall in crude oil prices, which have tumbled to around $108 a barrel after Hurricane Gustav left energy facilities in the Gulf of Mexico mostly unscathed.
The dollar index, which tracks its performance against six major currencies, rose more than 0.7 percent to an 11-month high of 78.651.
The index has gained about 9 percent since mid-July, breaking long-term technical resistance levels that have convinced many analysts it is poised for a long-term recovery.
The dollar was flat against the yen at 108.65 yen, but its overall rally continued to batter an already deflated sterling, which hit a 2 1/2-year low due to ongoing speculation that the UK economy is also heading towards a recession.
Sterling fell as low as $1.7669, crashing more than a full cent to its lowest since April 2006, before figures showing an improvement in the UK services sector pulled the beleaguered UK currency to $1.7720 earlier.