The euro kept its footing above the 85 cents to the US dollar mark yesterday as the market, lacking other significant news, continued to focus on Bank of England governor Mr Eddie George's comments that a strong dollar may fuel inflation in the euro zone.
Traders seized on the remarks from Britain's top central banker and chairman of the Group of 10 central banks to bid the euro back up to $0.8543 from $0.8494 overnight in New York.
Mr George warned the strong dollar was fuelling inflation in the euro zone and squeezing US exporters.
His remarks sparked fresh speculation that the US government might shy away from its strong-dollar policy and that the European Central Bank might wade back into currency markets to buy euros.
But Barclays Capital strategist Ms Jane Foley said weakening of the dollar could also be attributed to the softer-than-expected US consumer credit numbers announced on Monday, as well as Mr George's comments.
She doubted that reaction to his remarks would have much further effect as the market looks for new incentives.
German export data today and French consumer price data tomorrow will be closely watched for any weakening, she added.
Meanwhile, sterling was weaker against the euro.
Analysts said that although UK fundamentals remained comparatively strong, the pound faced pressure owing to a possibility of British entry into the EMU.
Although EMU entry may not happen for five or six years, it is still an issue which markets are concerned about. Speculators therefore do not have a strong appetite for sterling, she said.
