The euro set a record high against the US dollar early on Friday, but the key $1.50 level remained out of reach and the currency fell back more than a cent on comments from a euro zone policy-maker.
European Central Bank Governing Council member Miguel Angel Fernandez Ordonez said he saw a greater-than-expected economic slowdown in the euro zone and there was not enough data to dispel uncertainty about the effects of financial market turmoil.
Ordonez's comments reminded investors that the fallout from the credit crisis is not limited to the United States, where the fallout has prompted 75 basis points worth of cuts in the fed funds rate since September and helped send the dollar to record lows.
Moves in currencies were exacerbated by thin liquidity following the Thanksgiving holiday in the United States on Thursday and a Japanese market holiday on Friday.
Ordonez's comments gave some respite to the dollar, which earlier slid to record lows versus the euro, the Swiss franc and a basket of six currencies earlier on Friday, as investors bet that the Federal Reserve will cut rates by at least another 25 basis points at its next meeting on December 11.
However, analysts see few reasons for the resurgence in the dollar to last. "The most 'hawkish' that the Fed can be is to defer rate cuts from one FOMC meeting to another," wrote Dennis Gartman, an independent investor, in a daily note to clients.
"Given the less-than-normal liquidity problems that are always extant over extended holiday periods in the US, today's movements might be somewhat exaggerated, but the trend is the trend is the trend." In afternoon trading in New York, the euro was at $1.4835, down 0.1 percent on the day and well below the peak of $1.4966 set earlier in the session, according to Reuters data.
"We don't want to make too much out of moves in the current trading environment," said Steve Malyon, a currency strategist at Scotia Capital. "But we will nonetheless be watching the 1.4750 and 1.4710 levels closely in the coming days. Overall, euro/dollar still looks poised to go higher."
The sell-off in the euro/dollar helped drag the dollar up from 2-1/2 year troughs versus the yen, but with trading around 108.25 yen the dollar is still down more than 6.0 percent since the start of November, and on track for its biggest monthly percentage fall versus the yen since March 2000.
The yen and the Swiss franc have both benefited in recent sessions as investors, worried about the fallout from credit market problems and the impact on the broader economy, remained averse to risk. The dollar index, which measures the dollar against a basket of six currencies, fell as low as 74.484 early on Friday before trading nearly flat at 75.053 in New York.
Worries about the fallout have been stoked by the Organisation for Economic Co-operation and Development, which warned in a report on Wednesday that overall losses caused by the US mortgage market crisis could conceivably hit $300 billion. The dollar fell to a historic low of 1.0899 Swiss francs, according to Reuters data, before rallying to trade up little changed at 1.1022.