The euro extended gains versus the dollar on Wednesday, rising to session highs, helped by comments from European Central Bank Jean-Claude Trichet who said that euro zone interest rates were at the right level.
The euro rose to an intraday peak of $1.5809, up 1.2 percent on the day, and within striking distance of a historic high of $1.5906 touched last week. The dollar was down 0.8 percent at 99.26 yen after earlier slipping to a session low of 98.900 yen .
Trichet told a monthly French magazine that the current level of interest rates in the euro zone was the right one, dashing expectations that the ECB would ease monetary policy soon.
"It's an expression of the contrasting dynamics between the U.S. and euro zone economies. It's as simple as that," said Asraf Laidi, chief market analyst at CMC Markets in New York.
"Trichet's comments are "just another way of saying markets should not bet on a rate cut anytime soon," Laidi said.
The dollar managed to trim its losses against the yen after a slightly better-than-expected U.S. new home sales report for February, but the data did little to ease concerns about the beleaguered sector.
Both the durable goods and housing reports contrasted with European data on Wednesday that suggested the euro-zone economy was much healthier than that of the United States despite a soaring euro and higher interest rates.
"It has not been a good environment for the U.S. dollar," said Rafael Martorell, chief dealer at BNP Paribas in New York.
"Everyday we have confirmation that the European Central Bank will keep interest rates on hold, while the U.S. economy is in pretty bad shape and that means lower rates," he added.
The dollar dropped against the Swiss franc .
Data on Wednesday showed new orders for long-lasting U.S. goods declined 1.7 percent last month and a key measure of companies' appetite for investment also contracted, according to data from the Commerce Department.
On the other hand, the pace of new home sales fell to an annual rate of 590,000 from an upwardly revised 601,000 in January. Economists polled by Reuters were expecting sales to fall to 580,000 in February from the previously reported January rate of 588,000.
The housing report was greeted with minimal fanfare and some analysts said the slightly positive outcome does not necessarily mean the sector is emerging from its downturn.
"The decline in homes for sale helps stabilize the inventory levels...which is hardly something to celebrate in the big picture since it will continue to place significant downward pressure on prices," said Alan Ruskin, chief international strategist at RBS Greenwich Capital in a research note.
Wednesday's data boosted the perceived chances the Fed would further ease its benchmark rate from the current 2.25 percent at its next monetary policy meeting, despite the U.S. central bank cutting rates by 300 basis points since September.
Rate futures were factoring in a 40 percent chance of a half-percentage point rate reduction from about 28 percent late on Tuesday, while a 25-basis point cut has been fully priced.
Earlier in the session, the euro got a boost after the headline German business sentiment Ifo index rose to its strongest reading since August, while euro-zone industrial orders also turned out much stronger than expected in January.
"This goes to show that European producers continue to operate on all engines despite higher exchange rates and despite a slowdown in the United States. We're not seeing much of a spillover of the U.S. slowdown just yet," said Boris Schlossberg, senior currency strategist at DailyFX.com in New York.
Euribor interest rate futures turned negative after the data. Futures traders are now pricing in only a 50 percent chance of an European Central Bank cut by year-end while they factored in more than two 25 basis point moves a week ago.
"Euro is right now clearly overbought, but for the time being the fundamentals point pretty much the euro zone's way. The ECB has absolutely no reason to change course since their economy is far stronger than that of the U.S," DailyFX's Schlossberg said.