LONDON - The dollar endured a fresh wave of selling on Wednesday, sinking to a record low against the euro for a second session and clocking a 12-year trough against sterling.
The greenback has been under pressure in recent weeks, rattled by concerns about the massive U.S. current account deficit and central banks diversifying out of dollars.
Analysts said that a surprise monthly rise in German retail sales for October gave investors an excuse to push the euro higher early in European trade but cautioned that the dollar looked poised for a correction given recent sharp falls.
"In this environment when the market is focused on dollar weakness, the data provided an opportunity for euro to head higher," said Marios Maratheftis, foreign exchange strategist at Standard Chartered Bank.
"I see some short-term risks for consolidation or even a brief dollar comeback. As we move to the year end we could see some profit-taking."
The dollar hit a record low of $1.3335 per euro in early European trade but later trimmed losses to stand at $1.3295 per euro by 4:10 a.m. EST -- virtually unchanged from late New York levels. The dollar fetched 102.90 yen.
The pound rose to its highest levels against the dollar since before Britain was ejected from the Europe's exchange rate mechanism in 1992 at $1.9196.
Remarks by European Central Bank President Jean-Claude Trichet on Tuesday suggesting the bank was unlikely to intervene in favor of the dollar also underpinned the single currency.
The market was also digesting news that growth in the euro zone's manufacturing sector almost came to a halt in November, with the Eurozone Manufacturing Purchasing Managers' Index (PMI) tumbling to 50.4 from 52.4 in October.
However, economic news has been mostly ignored in the two-month dollar sell-off.
DATA DUE
Market players were turning their attention to a slew of economic indicators due in the United States this week, including manufacturing data at 10 a.m. EST and the monthly payrolls report on Friday.
If the reports reinforce expectations that the Federal Reserve will steadily lift U.S. benchmark interest rates, the dollar could receive support, said some traders and strategists.
Markets are also awaiting a speech by Federal Reserve Bank of San Francisco President Janet Yellen later on Wednesday, wonderinf whether she will echo other Fed officials' view the dollar would need to fall to correct the current account gap.
Dealers also remained wary about potential Japanese intervention to underpin the dollar against the yen, especially with the U.S. currency trading under 103 yen.
"There is caution, particularly from overseas investors, that the Japanese could intervene massively," said Kaoru Kondo, chief forex analyst at Fisco. "So the market is reluctant to aggressively sell the dollar."
Japanese Finance Minister Sadakazu Tanigaki said on Wednesday that he was ready to take action as needed against unusual moves in the currency market.