The euro fell to a nine-month low against the dollar today as investors brushed aside soft US retail and inflation figures and bought the greenback on expectations that interest rates will keep rising.
The US currency initially sank against the euro yesterday after data showed retail sales staged their sharpest drop in nearly a year in May while producer prices posted the biggest decline in two years.
But the dollar recovered partly on the belief that the US economy would continue to outperform the euro zone, where few analysts expect a rate rise this year and some are betting the European Central Bank's next move may even be a rate cut.
"Sentiment really has turned in favour of the dollar," said Hideaki Furumaya, forex manager at Trust & Custody Services Bank in Tokyo.
"The market is seizing on any strong data as a chance to buy more dollars, and ignoring any data that is weak."
The euro has fallen 11 per cent against the dollar so far this year, due to sluggish economic growth in the euro zone and concerns about political cohesion in the region after French and Dutch voters rejected the proposed European Union constitution.
Earlier this morning the euro bought around $1.2045 after dropping to a fresh nine-month low of $1.2017 earlier in the Tokyo session.
It bought $1.2031 in late trade in New York, where it had initially risen as high as $1.2152 on the US data. Dealers said stop-loss orders to sell the euro were lined up at the psychologically key $1.20 mark, and if that level were pierced the currency could spike as low as $1.1950.