The dollar hit record lows against the euro for a fifth straight session on Thursday on a growing view that the European Central Bank would let the single currency run free at current levels.
The U.S. currency has been under heavy pressure for a while on investor concern about the country's widening current account deficit and expectations that U.S. interest rates will remain steady for some time.
A series of comments from euro zone officials also drove markets to believe the resulting strength of the euro was not likely to prompt intervention in currency markets.
"They don't want to be seen as considering intervention," said Niels Christensen, senior currency strategist at Societe Generale in Paris.
"They don't want to intervene at these levels because it's not a strong euro story, it's a weak dollar story. The ECB itself cannot change the direction of the dollar."
By 1030 GMT the dollar fell as low as $1.2436 per euro, according to Reuters data, beating the previous session's record low of $1.2422.
So far this year, the euro has gained more than 18 percent of its value against the dollar and about 50 percent since the it hit record lows in 2000.
The euro zone's central bankers were due to meet on Thursday but were not scheduled to make decisions on interest rates. Any announcements on other issues would be made at 1330 GMT.
ECB Members speak out
German data showed business confidence rising for an eighth month running in December in the euro zone's largest economy.
The Ifo economic research institute said its business climate index rose more than expected to 96.8, its highest level since the start of 2001 and up from 95.7 in November.
However, the euro zone's economic performance was overshadowed by speculation that comments from ECB officials signalled little readiness to step into the market to stop the euro just yet.
ECB President Jean-Claude Trichet was quoted saying he was happy both Europe and the United States were aiming to keep their currencies strong and stable.
His comments came a day after ECB chief economist Otmar Issing was quoted as saying the euro's exchange rate against the dollar was back to normal, having reached the same level as around the time of its introduction of $1.17 in 1999.
ECB sources were also reported on Wednesday as saying the ECB was unlikely to consider currency intervention before the euro reaches $1.35.
Ifo president Hans Werner Sinn also said the effect of the euro's rise on German businesses was "ambiguous".
"The euro's move is orderly so far and euro zone policymakers are not worried about the euro and perhaps the opposite - they see higher inflation but they don't want to raise rates yet. A stronger currency eases inflation," said Benedikt Germanier, currency strategist at UBS in Zurich.
Against the yen, the dollar was around 107.50 yen, little changed on the day. Sterling remained firm, holding at around $1.7650, but below Wednesday's 11-year high near $1.7700.
Investors were on watch for any signs of intervention by Japan, with speculation intensifying the government is set to announce a higher borrowing limit for funds for its foreign exchange operations.
Government sources have told Reuters Japan would raise the cap on its foreign exchange account to 100 trillion yen ($931.2 billion) for the fiscal year ending next March from the current ceiling of 79 trillion yen, giving Japan more scope to intervene against the yen.
U.S. weekly jobless claims, due at 1330 GMT, were expected to show a total of 365,000 new filings. The Philadelphia Federal Reserve Bank was due to release its December business activity survey at 1700 GMT. The index was seen down slightly to 25.4 from 25.9 in November.