The dollar made a strong recovery today, jumping one percent against other major currencies as investors unwound bets on further losses after a precipitous two-month decline.
Concerns over growing US budget and trade deficits have taken a heavy toll on the dollar, but analysts said the greenback was now finding support from the United States' relative growth advantage and the prospect of higher US interest rates.
Early this afternoon the euro was down one per cent at $1.3195, having hit a record high of $1.3470 earlier this week.
"We are seeing a shake-out of short dollar positions," said Mr Derek Halpenny, currency economist at Bank of Tokyo Mitsubishi in London.
"The market is starting to take economic fundamentals into account."
The Federal Reserve is widely expected to raise US interest rates to 2.25 per cent next week. Such a move would lift US rates above euro zone rates for the first time in more than three years.