LONDON: The euro jumped above $1.46 on Thursday for the first time in 16 months before falling back slightly as investors take on board growing concerns about the US debt outlook.
Standard & Poor's shook the markets on Monday when it downgraded its rating outlook on US debt for the first time ever, putting the spotlight on Washington's consistent failure to stabilise the US public finances.
The downgrade and a warning that S&P could cut the rating outright if no solution is forthcoming has pressured the dollar since even though the eurozone has its own debt problems which refuse to go away.
In late European trade Thursday, the euro was at $1.4581, off a high of $1.4649 earlier and up from $1.4521 in New York late Wednesday.
The dollar fell sharply too to 81.80 yen from 82.54 yen.
On the London Bullion Market, gold hit a fresh record high of $1,508.88 an ounce one day after topping $1,500 for the first time. It closed at $1,504.
Fears over rising global inflation and large debt levels in the eurozone and United States was triggering demand for traditional safehaven assets such as gold and the Swiss franc, dealers said.
The euro additionally benefitted from expectations of more interest rate rises for the eurozone to tackle rising prices.
"The US dollar has been pounded across the board in the past 24 hours, falling against all the major currencies," said Michael Hewson, market analyst at trading group CMC Markets.
Dealers said the Australian dollar was a major feature on the day, hitting a 29-year high at $1.0771 as the US unit softened and commodity prices held strong.
"The move we have seen since Wednesday's low of $1.0443 has been nothing short of spectacular," said IG Markets analyst Ben Potter.
"There's a 'fear of missing out' scenario playing out in the Australian dollar at the moment. Many traders have been looking for the Aussie to pull back over the last few days -- it hasn't and traders have started chasing it," he added.
Australia, the first major Western economy to raise interest rates after the global slump, has hiked its cash rate by 175 basis points since October 2009 as it rides a mining boom driven by Asian demand that helped it dodge recession.
In London late Thursday, the euro changed hands at $1.4581 against $1.4521 late in New York on Wednesday, at 119.28 yen (119.89), £0.8800 (0.8850) and 1.2863 Swiss francs (1.2894).
The dollar stood at 81.80 yen (82.54) and 0.8824 Swiss francs (0.8882).
The pound was at $1.6567 (1.6407).
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