The euro fell today to a new four-year dollar low on financial sector fears, while the US unit also won support as investors sought safety amid jitters over Israel's deadly Gaza ship raid.
The euro tumbled as low as $1.2111 this morning, touching a level last seen on April 14, 2006. It later recovered a little to stand at $1.2169 this afternoon. It was also worth 83.51 pence sterling.
European stock markets fell sharply today, after the European Central Bank had referred to the possibility of new asset write downs by euro zone banks in a key report yesterday.
Sentiment was also hurt by a move by credit rating agency Fitch last week to downgrade Spain's rating one notch from the maximum AAA to AA+ owing to the country's poor growth prospects.
Analysts also said that the US dollar was benefiting from its safe haven status after Israel's deadly navy raid on an international aid convoy heading for Gaza. The dollar is regarded by many investors as a safe bet in times of geopolitical uncertainty.