The euro moved back up towards record highs versus the dollar this morning, as investors focussed on the European Central Bank's inflation concerns that will likely prevent it from cutting interest rates for a while.
The ECB held rates at 4 per cent as expected yesterday, with President Jean-Claude Trichet balancing upside price risks with downside growth concerns.
On the day, the balanced statement together with better-than-expected US weekly jobs data sparked a round of profit taking in euro/dollar, knocking it off record highs.
But the dollar recovery did not last as the spotlight turned back to the contrasting yield differentials and the Group of Seven meeting starting later today.
The euro stood at $1.5823, up 0.5 per cent on the day, and moving back towards the record peak of $1.5912 hit according to Reuters data yesterday. The single European currency has gained nearly 9 per cent since the start of this year.
Mr Trichet said the recent volatility in foreign exchange markets was excessive and was to be deplored.
But a strong currency actually helps the ECB's inflation fighting crusade by making foreign goods cheaper, while a weak dollar is helping the United States reduce its hefty current account deficit.
As such, most analysts reckon the G7 is unlikely to criticise the euro/dollar rate in its communique.
Many also doubt that the meeting will yield any effective remedy for the dollar-negative financial and credit crisis.
"Overall we doubt the G7 will offer much in the way of a dollar rescue package," ING said in a research note. "This being the case, dollar should come under renewed downward pressure."
The dollar was steady at 101.68 yen, while the euro rose to 160.89 yen.
Signs of a rise in risk appetite such as a 2.9 per cent rally in Japan's benchmark Nikkei share average gave a lift to higher-yielding currencies against the yen, traders said.
The euro also rose against sterling, to £0.801 pence, in reach of the previous day's all-time peak at £0.8029.