The euro continued to hover around 20-month highs on Thursday after the European Central Bank extended its campaign of rate hikes as anticipated, lifting its benchmark figure to 3.5%.
In afternoon European trading, the 12-nation currency stood at $1.3294 -- up from $1.3285 in New York late Wednesday.
The euro recently has hit a series of 20-month highs against the dollar amid expectations that the gap between U.S. and European interest rates would continue to narrow.
Last week, the British pound reached a 14-year high against the dollar. However, it has since slipped, and on Wednesday traded at $1.9674 -- up from US$1.9658 on Tuesday. The Bank of England held its key interest rate steady at 5 percent Thursday, a decision that was widely expected after increases in August and November took rates to the current five-year high.
The dollar fell to 115 Japanese yen from 115.26 yen.
Markets are now looking for guidance from ECB President Jean-Claude Trichet when he discusses the rate increase decision, and clues about possible rate increases in 2007.
The dollar has been hurt by the Federal Reserve's decision to keep its rates unchanged for the last three meetings after a more-than two-year stretch of credit tightening.
Higher interest rates, a weapon against inflation, support a currency by making assets denominated in that currency more attractive to investors.