LONDON: The euro fell to a new nine-year low against the dollar on Wednesday after data showed the euro zone prices falling for the first time since 2009, piling pressure on the European Central Bank to take bold policy action.
Eurozone consumer prices fell by a worse-than-expected 0.2 percent annually in December because of much cheaper energy.
One measure of core inflation that ECB members have favoured in the past and excludes volatile energy and unprocessed food prices held steady at 0.7 percent in December, while another measure, which also excludes alcohol and tobacco, actually edged up to 0.8 percent.
That initially provided the euro with some relief and the single currency pared losses, but it then fell again, hitting a low of $1.1823 - its weakest since January 2006 - as the dollar rallied across the board.
Adam Cole, global head of FX strategy at RBC Capital Markets in London, said the euro's fall to new lows was more a result of the dollar's strength, because markets had already priced in a programme of sovereign quantitative easing in the euro zone.
Cole added that investors had been prepared for the soft euro zone numbers after data on Monday had shown headline inflation in Germany - Europe's biggest economy - slowing to its lowest level in over five years in December.
Against a basket of currencies, the dollar powered to a nine-year high at 92.027 ahead of minutes from the U.S. Federal Reserve's December policy meeting, due later in the day. The minutes will be scoured for any clues as to when interest rates might begin to rise.
Investors will also look at ADP jobs numbers due at 1315, which are seen as a precursor to U.S. payrolls data on Friday.
"Now (the euro zone data) is out the way maybe the attention shifts to more U.S. factors as opposed to the euro zone focus that's been in place over the past few days," said Ian Gunner, portfolio manager at the Altana Hard Currency Fund in London.
After Brent crude oil fell below $50 a barrel for the first time since May 2009, oil-rich Canada's dollar hit a 5-1/2 year low at C$1.1870 against its U.S. counterpart . Oil-rich Norway's crown also skidded towards a 12-1/2-year low against the dollar.
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