The dollar tumbled to record lows against the euro and a basket of key currencies on Tuesday after weak data added to worries over the ailing US economy and a Federal Reserve top official signalled more interest rate cuts.
Compounding the dollar's woes was news that German corporate sentiment unexpectedly rose in February, suggesting that the European Central Bank was unlikely to ease monetary policy in the near-term.
That left investors focusing on interest rate differentials between the United States and the euro zone. The Fed has lowered its benchmark overnight lending rate by 2.25 percentage points to 3 percent since mid-September, while the ECB's main refinancing rate has been held steady at 4 percent.
"The make-or-break event today was the Ifo survey. It confirmed the idea that the European economy is doing much better than the US economy and that the whole notion of decoupling still exists," said Boris Schlossberg, senior currency strategist at DailyFX.com in New York. "It's very unlikely that the ECB will lower rates any time soon, and the interest rate differentials are going to be more of a factor as we go forward."
The euro surged to an all-time peak of $1.4982, according to Reuters data, beating the previous record of $1.4966 touched on November 23. It was last trading around $1.4965, about 0.9 percent higher on the day. The dollar index, which tracks the greenback's performance against six major currencies, dived to a life-time low of 74.706, exceeding the previous record trough of 74.753 tested on November 27.
Data showed US consumer confidence dropped in February to a 17-year low. That compared with news that German's business climate index, according to the monthly survey by the Ifo economic research institute, rose to 104.1 in February, beating market expectations for a slip to 102.8.
A report showing US producer prices were higher than expected in January had little impact on the market, with Fed Vice Chairman Donald Kohn saying risks to US economic growth were a bigger worry for the central bank than inflation.
"The Ifo report was all the market needed. US data, if we ignore PPI, was negative. The comments from Kohn also added to the negative dollar sentiment," said Matthew Strauss, senior currency strategy at RBC Capital Markets in Toronto.
The dollar was also hammered versus the high-yielding Australian and New Zealand dollars, which also benefited from firmer US stocks. The Australian dollar rose 0.7 percent to US $0.9327.
The New Zealand dollar rose to a 23-year post-float high against the US dollar, climbing as high as US $0.8158 before retreating to US $0.8145, up 0.4 percent on the day. Oil prices above $100 a barrel buoyed the Canadian dollar against its US counterpart. The dollar last traded down 1.3 percent at C$0.9827. The dollar came close to touching a record low versus the Swiss franc. It last traded down 1.3 percent at 1.0755 Swiss francs.