The US dollar slipped to fresh record lows against the euro yesterday, on concerns over possible attacks on US targets during New Year holidays and a weak outlook for the greenback next year.
The euro was trading at 7:05am GMT at around US$1.2567, after hitting a record high of US$1.2596, dealers said.
The US dollar also fell to its lowest in six years against the Australian dollar and the New Zealand dollar.
"At New Year's eve, security concerns will drive the market," said a dealer in Singapore.
The dealer said some major players were building positions in anticipation of a further decline in the US dollar in the new year.
"The target is US$1.26 which now looks very achievable, but there is also talk of a test of US$1.30 next month before the G7 meeting," he said.
A G7 source said on Tuesday the Group of Seven industrialized nations would look at the weakened dollar when they met in Florida in early February. The source said European nations were becoming increasingly concerned about the dollar's fall.
The G7 source said a euro trading higher than US$1.20 could not be good for Europe's economy, while a level of US$1.30 represented a pain barrier.
The Australian dollar touched levels above US$0.75, its highest since August 1997, bagging 34 percent gains for the year. The New Zealand dollar touched 6-year high of US$0.6559.
Dealers said thin conditions due to a holiday in Japan, where markets are closed for the rest of the week, might have turned trade a bit volatile in Asia.
Weaker-than-expected US consumer confidence, manufacturing and home sales data on Tuesday also weighed down the dollar, already hobbled in recent months by low US interest rates and a widening US current account deficit.
Dealers said the euro was taking the major brunt of the dollar's decline as Japan's resistance to currency strength had made the market cautious about pushing the yen higher.
The dollar yesterday dealt as low as ?106.92, against ?107.03 in late New York trade, dealers said. The dollar hit a three-year low of ?106.75 this month.
Simon Flint, a strategist at Bank of America in Singapore, said the euro should see a correction lower before posting further gains.
"Our basic view is that we are already in an overshooting phase. It's only a matter of time for the euro to suffer some kind of retracement from these overbought levels," he said.
But Philip Wee, at Singapore's DBS Bank, said the growing US current account deficit would keep pushing the dollar lower in the medium to long-term.
"From a current account point of view the dollar adjustment has still got quite some way to go," he said.
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