The euro jumped to a record high against the dollar here on Friday on investor fears the US might have trouble attracting enough capital to cover its burgeoning trade deficit.
The single European currency at one point shot up to US$1.2952, smashing a previous all-time summit of US$1.2929 reached on Feb. 18.
The euro later fell back to US$1.2942 in late-afternoon trade, against US$1.2874 on Thursday in New York.
The dollar slipped to ¥105.58 yen from ¥105.94 on Thursday.
Dealers were fretting about the economic implications of the electoral win of US President George W. Bush, analysts said.
"It's the same story we've had since the election result was made clear," said Chris Furness, currency strategist at the 4Cast economic consultancy firm.
"That is that the politics are not going to change now in the US and geopolitical temperatures are not going to be reduced very much, and may even go higher. On the economic front we may well get growth, but we will get growth at the cost of higher deficits, certainly the trade deficit at least," Furness said, adding that the euro could hit US$1.40 within the next year.
Last month, Washington announced a record 2004 budget deficit of US$413 billion, while the trade deficit in August rose to US$54 billion, the second largest ever.
Dealers are worried about how the US will attract the necessary capital inflows to fund the deteriorating trade balance. The fear is that overseas investors might lose confidence in the debt-ridden US economy, placing their money elsewhere.
That could further depress the dollar, prompting higher US interest rates and thereby dampening growth prospects in the US and elsewhere.
"The dollar is not a currency in fashion at the moment because of the structural factors which underline the imbalances in the US economy," said Audrey Childe-Freeman, economist at Canadian Imperial Bank of Commerce.
The dollar had rebounded briefly against the euro earlier Friday on news that the US labor market created a seven-month record of 337,000 new jobs last month.
Employment growth in October exploded from the 139,000 jobs created in the previous month. It also smashed past Wall Street economists' consensus forecast for a gain of 175,000.
But investment funds saw the dollar rebound as an opportunity to sell the US currency for euros, while central banks in the Middle East and Asia were also active, Furness said.
"After the payrolls, in came the central banks again. Reserve adjustment has certainly got to be part of the plan at the moment," he said.
A steady rise in the euro is a cause of concern for European leaders, as the trend makes eurozone exports more expensive and less competitive and threatens what is already an uncertain recovery.
But a strong euro at the same time spares Europe some of the pain of higher oil prices, as crude sales are denominated in US dollars.
Eurozone officials have previously said they would be comfortable with the euro trading up to US$1.30, and the market will therefore be watching carefully for any comments made by officials or politicians once the currency breaks through that barrier.
The euro was introduced in 12 countries -- Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain -- on Jan. 1, 1999, in check form and as a virtual currency.