LONDON (Dow Jones)--The dollar continued to weaken in European hours Tuesday as traders returning from a four-day weekend sat on negative dollar bets ahead of an interest rate decision by the Federal Reserve Wednesday.
The euro rose to a 16-month high of $1.4653 and the dollar hit a record low against the Swiss franc, while the ICE Dollar index touched a three-year low.
"The trading community for the most part seems content to sit on existing [negative dollar bets] into the Fed expecting to get paid on the day," said strategists at BNP Paribas in London.
The euro shrugged off comments from European Central Bank executive board member Juergen Stark that "a debt restructuring of a euro-zone member would place the Lehman Brothers insolvency in the shadows" by sparking off a new banking crisis and "would fail to address budget and structural problems in individual countries."
The common currency was also unfazed by official euro-zone figures revealing that Greece's budget deficit in 2010 was significantly higher than forecast by either the Greek government or the European Union.
Foreign-exchange analysts anticipate that the euro will continue to climb against the dollar. "This is going to persist for some time yet until valuations become stretched and there is increased chatter that a strong euro is hurting euro-zone manufacturers' competitiveness," said Paul Robson, senior currency strategist at RBS in London.
The other main focus of the session was the Swiss franc, which traded at a record high against the dollar of CHF0.8768. A combination of dollar weakness and cautious investor sentiment overnight, as Asian shares sagged, helped the franc higher.
Elsewhere, sterling initially benefited from dollar weakness to trade as high as $1.6534 ahead of first-quarter economic output data Wednesday. But a U.K. bank was seen selling sterling in the market, according to Citigroup. This took some shine off the pound, which failed to capitalize on a survey by the Confederation of British Industry showing that U.K. manufacturers intend to raise their prices at the fastest rate in more than 20 years over the coming quarter.
At 1056 GMT, the euro was trading at $1.4618 against the dollar, compared with $1.4579 late Monday in New York, according to trading system EBS.
The dollar was at Y81.67 against the yen, compared with Y81.81, while the euro was at Y119.40 compared with Y119.25. Meanwhile, the pound was trading at $1.6497 against the dollar, compared with $1.6506 late Monday in New York.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 73.85 compared with 74.024 late Monday in New York.
