The dollar resumed its slide and fell to record lows against the euro on Wednesday amid growing pessimism over the US economy. Demand for the currency fell further after data showed the country's service sector contracted for a second straight month in February.
Also on Wednesday, US Treasury Secretary Henry Paulson told policy-makers that while the economy would likely continue to grow, risks were to the downside, adding to mounting fears of an economic recession. "The comments from Mr Paulson were not particularly constructive. It's just a trend that continues to be in place," said John McCarthy, director of foreign exchange at ING Financial Markets in New York.
The euro jumped to a historic peak of $1.5302 against the dollar, according to Reuters data. It was last trading at $1.5265, up 0.4 percent on the day. The dollar index, which tracks the greenback's performance against a basket of currencies, dipped to record troughs at 73.371.
"There were stops above 1.5250 and 1.5275. People are selling dollars across the board. It's tied to general demand for euro against the yen and Swiss franc as well," McCarthy said. News that the US services sector contracted at a slower pace in February boosted investors' appetite for risky assets such as stocks and high-yielding currencies at the expense of the low-yielding Japanese yen and Swiss currency.
The Institute for Supply Management said its non-manufacturing index climbed to 49.3 in February, beating market expectations for a reading of 47.0 and above January's print of 44.6. A reading below 50 means a contraction.
Against the yen, the dollar climbed to session peaks of 104.18 as US stocks rebounded from Tuesday's losses. It was last trading up 0.5 percent at 103.83 yen.
"The market is looking for any excuse to take profits on short dollar positions. This is not a good report," said Michael Woolfolk, currency strategist at Bank of New York Mellon in New York. "The data is fully in keeping with the Fed's base line scenario that the economy continued to weaken in the first quarter and the need for continued rate cuts."
Investors showed little restraint against driving the dollar too low against the euro before Thursday's European Central Bank policy meeting. Analysts expect the ECB to maintain its hawkish inflation rhetoric despite complaints this week by euro-zone finance minister that the euro is overvalued against some currencies. Schiff said he sees the euro above $1.60 this year and is advising clients to sell the US currency in favour of the Swiss franc, the New Zealand dollar and most Asian currencies.
Adding to the pessimism against the dollar, an independent report showed that US private employers cut 23,000 jobs in February, compared with market expectations for 20,000 new private-sector jobs.