LONDON (AFP) - The euro breached the key 1.50 dollars level on Wednesday to hit fresh 14-month highs as increasingly confident investors deserted the US unit in favour of higher yielding assets, dealers said.
They said the euro will likely make further gains as the US government keeps interest rates low in an effort to get its struggling economy back on track.
"Next stop, 1.60 dollars," said GFT Global Markets analyst David Morrison.
"We'll need to build support above 1.5000 dollars, just so the market gets used to the idea, but technically there's no reason why we shouldn't get back up to 1.6000 -- after all, we were there in July 2008," Morrison said.
Analysts said it is cheap to borrow dollars which are then switched into other currencies such as the euro, or into stocks and commodities which have soared on hopes that the recovery from the global economic slump will hold.
That puts more pressure on the dollar which attracted massive fund inflows as the safest investment during the darkest months of the financial crisis after the collapse of US bank Lehman Brothers in October 2008.
Sentiment turned, however, in March as the first signs of recovery came through, with more adventurous players beginning to switch out of the dollar which has fallen about 20 percent since then against the euro.
In late London trade, the euro was at 1.5011 dollars, a level last seen on August 11, 2008, up from 1.4940 dollars earlier in the day and from 1.4937 dollars in New York late on Tuesday.
The euro hit a record high of 1.6038 dollars on July 15, 2008 and a record low of 0.8352 dollars on July 6 2001.
Analysts said they expected the euro to make further ground as there was no reason to expect any change in the underlying fundamentals of dollar weakness.
"We had to wait a while for (1.50 dollars) but there is continued benign neglect by US policymakers which means the dollar remains under pressure," Morrison said.
He said US Federal Reserve officials, including chairman Ben Bernanke, had made it clear that there would be no early change in US interest and the markets accordingly took them at their word.
Analysts said fears about the soaring level of US government debt were also at work as Washington has pumped trillions of dollars into the financial system in an effort to keep it and the banks afloat.
On the other side of the coin, there are mounting fears in Europe that a strong euro will undercut eurozone exports, denting its recovery.
On Monday, Eurogroup chief Jean-Claude Juncker, European Central Bank boss Jean-Claude Trichet and EU economic and monetary affairs commissioner Joaquin Almunia warned of the possible dangers.
"We spent quite a long time discussing exchange rates ... it's a problem which has us worried," Luxembourg Prime Minister Juncker said after a meeting of eurozone finance ministers from the 16 countries that use the euro.
Trichet said it was the trio's "common position" that the "excessive volatility" of currency movements had clearly "negative implications for the economic and financial stability" of Europe's economy as a whole.
Analysts said the official fears were well founded.
"The strength of the euro against the dollar heightens concerns about the strength and sustainability of the eurozone recovery," said IHS Global Insight economist Howard Archer.
"The most obvious losers ... will be major eurozone exporters to the United States, and to countries whose currencies are linked to the dollar, as they will obviously find their competitiveness impaired.
"This is at a time when global economic activity and trade is still fragile, with relapses a serious risk," he said.
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