LONDON, Jan 21 - The dollar continued to lose ground across the board on Wednesday after a two cent hammering against the euro on Tuesday marked the end of a week-long recovery. The euro rose three quarters of a percent to $1.2668 , coming back within sight of record peaks near $1.29 scaled early last week. A broadly weaker dollar suffered it biggest one-day fall against the euro in eight months on Tuesday after a statement by euro zone finance ministers voiced concern about currency market volatility but failed to outline steps to curb the pace of the euro's recent rally. "We're seeing a continuation of dollar selling that we saw yesterday," said Mitul Kotecha, head of global foreign exchange research at Credit Agricole Indosuez. "Euro zone finance ministers have warned consistently about currency volatility but current levels appear to be no major concern."
The euro turned tail from record peaks last week after European Central Bank President Jean-Claude Trichet spoke out about "brutal" currency moves and excessive volatility, testing one-month lows around $1.2330 on Monday. Its ability to hold above key chart support at this level added strong technical momentum to Tuesday's rally, with other currencies also making strident gains on the greenback.
MORE TO COME?
Chartists said the euro's push past resistance at $1.2630/40 on Wednesday held up the prospect of further gains. "The market wants to see if the euro can hold its momentum after seeing such a strong rise yesterday," said Katsunori Kitakura, manager of the treasury department at Chuo Mitsui Trust and Banking in Tokyo. Sterling was also a strong performer, pushing back within sight of last week's 11-year peaks against the dollar after staging its sharpest one-day rise on Tuesday in nearly nine years. Dealers said minutes of the Bank of England's latest policy meeting at 0930 GMT would be closely scrutinised for clues on the likelihood of an interest rate hike next month. The dollar was down a third of a percent at 106.70 yen with ever-present wariness of Japanese intervention preventing more dramatic losses in the greenback. U.S. economic releases are thin on the ground this week but a series of U.S. companies, including JP Morgan , Bank of New York and Merrill Lynch , will report later. U.S. President George W. Bush's State of the Union address made few ripples in the market, although dealers noted that his appeal for tax cuts to be made permanent boded ill for the U.S. budget deficit and hence the dollar.//