"Issing's comments tend to leave the impression with the market that long-term evaluation for the euro is perhaps not as high as the market had previously perceived it to be," said Stewart Newnham, senior strategist at State Street Bank in London. "The ECB would only intervene if the euro moves excessively away from fair value," he added. "Given that Issing has left the impression that we are not too far from that fair value right now, the euro would have to sink a lot lower before the ECB would deem its evaluation as excessively distant from fair value." Issing also said euro-zone inflation would keep rising in the coming months, but reiterated inflation would decline again after the first few months of 2000. The euro fell to a low of $1.0164, just shy of a chart support at $1.0160, before edging back up slightly. The euro also weakened below 105 yen, down more than one percent from its session highs. Although the euro on Monday staged its biggest one-day rally since its launch, analysts said traders weredisappointed by its inability since then to break a tough short-term resistance around $1.03. Offers probably linked with an option around that level were creating a barrier, they said.

The euro's subdued reaction to positive European data released on Wednesday also made analysts sceptical of its recovery potential.

"Euro/dollar's response to yesterday's positive (German) industrial production figures was close to nil, so there's a chance it's going to be very hard to break the level around $1.03," said Michael Rottmann, currency strategist at HypoVereinsbank in Munich. Analysts also noted there was a seasonal bias against the euro towards the year-end, with many investors preferring to keep funds in dollars or increase their weighting in yen. The dollar also got hit in the wake of the euro/yen's selloff and slipped below 103 yen.