The dollar hit a one-month high against the euro today, extending gains after the US Federal Reserve signalled it may accelerate the pace of interest rate rises to counter inflation.
The euro was also on the back foot after Germany's Ifo institute signalled a weakening in business confidence for March and after data showing a current account deficit for the euro zone.
The US central bank raised the cost of borrowing for the seventh month in a row to 2.75 per cent yesterday and said that "pressures on inflation have picked up" and the risks to growth and price stability would only remain balanced with appropriate policy action.
"The Fed statement reflected the growing unease with price pressures so they gave a slightly more hawkish assessment.
The market reacted with a rally in the dollar and it's still firm," said Mr Kristjan Kasikov, foreign exchange strategist at Calyon.
Earlier the dollar traded as high as $1.3027 against the euro, its highest level since February 18th and up around 0.4 per cent on the day. The dollar also hit a new five-week high against the Swiss franc at 1.1929 Swiss franc. Against the yen, the dollar rose slightly to 105.65 yen.
US benchmark interest rates now stand at 2.75 per cent compared with 2.0 per cent in the euro zone and virtually zero in Japan.
Higher US interest rates usually increase the appeal of US dollar-denominated assets to overseas investors.