The euro lost some of this week's gains against the dollar and sterling after the European Central Bank (ECB) left interest rates on hold and gave no indication that it was preparing to intervene in the markets to prop up the troubled currency.
The bank also hinted that further interest rate rises were imminent.
The ECB president, Mr Wim Duisenberg, declined to accept any blame for the collapse of the euro's exchange rate, which he claimed was moving ever further out of line with the economic fundamentals of the euro zone.
The euro slipped almost half a cent against the dollar after Mr Duisenberg's remarks. It ended the day in Frankfurt a little above $0.90 and subsequently dipped below that psychological support mark before rising again in late trade. It also fell back slightly against sterling to close just above 60p.
Speaking in Frankfurt after a meeting of the ECB's Governing Council, Mr Duisenberg hinted that interest rates would rise again soon, perhaps as early as the end of this month or the beginning of June.
He denied that the ECB engaged in "covert intervention" in the markets last week but refused to be drawn on whether he had discussed a concerted intervention with his US and Japanese counterparts at last weekend's G10 summit in Basle.
Pointing to the fact that eurozone currencies enjoyed a higher exchange rate two years before the single currency was launched, when economic growth was more sluggish, Mr Duisenberg claimed that it was clear that the euro was now undervalued. But he warned that the low exchange rate posed a threat to price stability to which the ECB would remain vigilant.
"The depreciation of the exchange rate of the euro will increase the risks to price stability. In the medium term these risks have to be taken seriously and we are taking them seriously in the light of the current exchange rate," he said.
Mr Duisenberg repeated the promise he made in a message last week to "the citizens of Europe", to ensure that, regardless of the exchange rate, the value of pensions and savings would keep their value over time. In view of the low rate of inflation in the euro zone, he said it was wrong to describe the euro as a weak currency.
"If you talk about a strong or weak currency you must look at the internal value of the currency. How can one call a currency that is characterised by stable prices a weak one?" he said.
The ECB raised rates a quarter point at its previous meeting two weeks ago, continuing a policy of gradually tightening credit conditions.
