The euro smashed through the symbolic 1.30-dollar level on Wednesday for the first time since it began trading on foreign exchange markets in January 1999.
The sky's the limit, it appears
The euro's new record high came despite data showing a narrowing of the US trade deficit -- a key worry for investors -- by a sharper-than-expected 3.7 percent in September to $51.6 billion.
The single European currency peaked at $1.3005 in afternoon trading in London, but struggled to hold on to the gains and quickly fell back to 1.2933.
Dealers are worried about how the United States will attract the necessary capital inflows to fund the deteriorating trade balance and budget deficit. The fear is that overseas investors might lose confidence in the debt-ridden US economy, placing their money elsewhere.
Analysts say market concerns about the deficits have increased in the wake of US President George W. Bush's re-election win last week.
"When the trade data came out the euro-dollar knee-jerked lower on the idea that it was dollar-positive data," said ABN Amro currency analyst Paul Mackel. "But it fell back very, very quickly. There were likely some option barriers at 1.30 as well that the market was gunning to take out and now we're starting to see it settle back a little bit. We're probably hover at around this levels going into the Fed decision tonight."
As expected, the US Federal Reserve raised the federal funds target rate by a further 25 basis points to 2.0 percent on Wednesday. Dealers were hoping for hints on whether a rate hike in December is also on the cards.
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.
On Jan. 4, 1999, its first day of trading, the euro changed hands for between $1.1745-1.181.
It made its debut in the form of banknotes and coins on Jan.1, 2002 and fell to an historic low of $0.8230 on Oct. 26, 2002.
The euro had made a foray into uncharted territory on Monday, but the rally stalled following a chorus of concern by euro zone officials.
A rise in the euro makes euro zone exports more expensive and less competitive and threatens what is already an uncertain economic recovery in the single currency area.
European Central Bank (ECB) chief economist Otmar Issing added his voice in a newspaper interview published Wednesday. Asked whether the ECB is concerned about the recent appreciation of the euro against the dollar, Issing repeated president Jean-Claude Trichet's comments that recent developments are "brutal" and "unwelcome."