LONDON — The European single currency plunged to a six-month dollar low on Wednesday as most traders favoured the safe-haven greenback in the face of renewed global economic jitters, dealers said.
However, the dollar dipped against the yen as expectations mounted that the US Federal Reserve will maintain its stimulative monetary policy at a meeting later in the day, dealers said.
At about 0850 GMT, the European single currency sank as low as 1.4022 dollars, a level last seen at the end of July.
It later stood at 1.4068 dollars, which compared with 1.4073 late on Tuesday.
Against the Japanese unit, the dollar slid to 89.35 yen from 89.62 yen late in New York on Tuesday.
"Risk aversion is the main driver again, as can be seen from the sharp sell-offs in equities, crude oil and precious metals," said analyst David Morrison at financial spread-betting firm GFT.
"With China engaged on a round of tightening, and US economic data -- particularly employment and housing -- still very weak, there is a move back into the dollar."
Europe's main stock markets slid Wednesday on concerns over economic recovery that also pushed Asian shares deeper into the red, dealers said.
The euro was also rattled by fresh concerns about Portugal's escalating state debt.
Portugal's budget deficit hit a record 9.3 percent of GDP in 2009, exceeding European Union and International Monetary Fund estimates of around eight percent, the government said Tuesday.
The Portuguese government also forecast that the public sector deficit would reduce to 8.3 percent of gross domestic product (GDP) in 2010, according to a draft budget submitted to parliament.
The figures are way above the eurozone limit of three percent of GDP, and Portugal has been under mounting pressure in recent weeks to intensify efforts to bring its fiscal house in order to avoid a possible debt crisis like Greece.
Later Wednesday, meanwhile, all eyes will be on the US Federal Reserve, which will conclude a two-day monetary policy meeting.
Traders were betting that the US central bank would signal it is likely to keep its benchmark lending rate unchanged at 0.25 percent for some time yet.
Lower interest rates tend to reduce a currency's appeal as investors search for higher yields elsewhere.
Players are nervous about when the Fed will wind down a series of special initiatives aimed at shoring up the financial system and which are set to expire in the coming months.
Markets were also waiting for a Senate vote on whether to approve Fed chief Ben Bernanke for another term.
Elsewhere, the British pound remained under pressure, one day after official data revealed that the economy had limped out of recession during the fourth quarter of 2009.
Gross domestic product (GDP) grew by just 0.1 percent in the three months to December, dashing market expectations for a 0.4-percent expansion.
In a separate development, investment management firm Pimco warned of the fragility of British government bonds amid growing investor unease about sky-high state debt.
"The UK is a must avoid. Its gilts are resting on a bed of nitroglycerine. High debt with the potential to devalue its currency present high risks for bond investors," Pimco managing director Bill Gross wrote in a web blog.
In London on Wednesday, the euro was changing hands at 1.4068 dollars against 1.4073 dollars late on Tuesday, at 125.71 yen (126.12), 0.8682 pounds (0.8715) and 1.4713 Swiss francs (1.4724).
The dollar stood at 89.35 yen (89.62) and 1.0458 Swiss francs (1.0464).
The pound was at 1.6205 dollars (1.6145).
On the London Bullion Market, the price of gold rose to 1,094.93 dollars an ounce from 1,093.25 dollars an ounce late on Tuesday.
