The euro eased back from its rapid climb against the dollar Tuesday, back from 20-month highs amid expectations of slower U.S. economic growth and higher European interest rates.
In late morning trading in Europe, the 12-nation currency stood at $1.3308, compared with $1.3328 late Monday in New York.
The slight dip came after European exporters were told to improve their product mix so as to increase their trade instead of sulking about the adverse effects of a strong euro. Speaking in Paris on Monday, European Commissioner for Economic and Monetary Affairs Joaquin Almunia said exporters and policy makers have blamed the value of the euro for their economic woes when they should be creating a more flexible labor force and products unmatched by low-cost Asian exporters.
"Our enemy is neither China, India or Brazil: it is we ourselves," Almunia said. "We have too much of a tendency to be satisfied with little and close our eyes when faced with uncomfortable realities."
The British pound continued to back off its 14-year high against the dollar, falling to $1.9744 on Tuesday from $1.9797 on Monday. The dollar fell to 114.79 Japanese yen, from 115.35 the day before.
The euro has moved closer to its all-time high of $1.3667, set in December 2004, amid expectations that the European Central Bank will continue raising interest rates, including when it meets Thursday. In contrast, the U.S. Federal Reserve is expected to hold, or even cut, its own rates.
Higher interest rates, a weapon against inflation, support a currency by making assets denominated in that currency more attractive to investors.
Analysts said that the ECB is set to increase interest rates to 3.5 percent, the sixth increase in 12 months, and traders will be looking for clues about rate hikes next year in the face of the rising euro.
"Just a few days ago it seemed a virtual certainty that the ECB would raise its key lending rate ... Thursday and again in 2007. But doubts have emerged as the euro has rapidly appreciated to its current above US$1.30," Commerzbank Chief Economist Joerg Kramer said.