Jean-Claude Trichet, President of the European Central Bank, fired a warning shot across the bows of foreign exchange markets as their relentless assault on the dollar continues to drive the euro to record highs that threaten to stifle eurozone growth.

Mr Trichet spoke out as markets’ latest sell-off of the dollar sent the euro to another all-time high of $1.5275 in early trading yesterday and signs of rising European political tensions over the single currency’s relentless gains surfaced.

In one symptom of growing anxieties among Europe’s political leaders over the euro’s rise through levels always seen as a “pain barrier”, the French head of the International Monetary Fund appeared to attack the role of the ECB in a highly unusual outburst.

Dominique Strauss-Kahn, the former French Finance Minister who is now the IMF’s managing director, seemed to blame ECB neglect of growth prospects and determination to focus on fighting inflation for the euro’s strength.

“The problem of the euro is that the European Central bank, which has worked well to contain inflation, is all-powerful,” he told Le Monde, the French newspaper. "There is no counterweight in the shape of a real European finance minister who would be tasked with ensuring growth.”

The ECB has retained a determinedly hawkish stance amid persistent eurozone inflation, with its rejection of the case for early cuts in interest rates to bolster growth one factor adding fuel to the euro’s surge upwards.

Mr Trichet yesterday broke his usual silence at meetings of the Eurogroup of eurozone finance ministers to signal to markets that the ECB would not remain indifferent whatever’s the euro’s value.

As Henry Paulson, the US Treasury Secretary, reiterated Washington’s mantra backing a strong dollar, the ECB President told reporters: “In the present circumstances, I consider it very important what has been affirmed and reaffirmed by the US authorities, including the Secretary of the Treasury and the President … according to whom the strong-dollar policy is in the interests of the United States of America.”

Mr Paulson told Bloomberg Television. “A strong dollar is in our nation's interest. The long-term [US economic] fundamentals are very solid and they're going to be reflected in our currency.”

Rising European unease over the euro’s gains was emphasised by Jean-Claude Juncker, chairman of the Eurogroup. “I am starting to become increasingly concerned and vigilant,” he said after yesterday’s meeting.

But none of the policy-makers’ comments may make much impact of the dollar’s relentless slide, with many currency market traders believing that Washington is content to tacitly accept the dollar’s decline and its boost to US exports, while reiterating that it supports a strong currency.

The dollar did claw back some ground, allowing the euro to edge back towards the $1.50 barrier that it breached last week in the immediate wake of the comments from Mr Trichet and Mr Paulson.

However, most analysts saw this as merely a bout of opportunistic profit taking by those assailing the dollar, who seized on the excuse of key figures on US manufacturing which, while grim, were not as bad as expected.

The latest gauge of conditions in US industry from the Institute of Supply Management’s regular survey showed activity in the sector in decline, and at the weakest levels for almost five years.

The ISM’s headline index of manufacturing activity in February dropped to 48.3, its lowest level since April 2003, while the survey’s gauge of employment in industry showed this falling at a faster pace last month as the sector’s output all but ground to a halt.

Fears of a further deterioration were fuelled as the ISM’s measure of manufacturing orders also indicated these declining at an accelerating pace last month.

In further bleak news from the US economy, official figures meanwhile showed that construction spending tumbled by 1.7 per cent in January, in its sharpest drop for 14 years.

European equity markets succumbed to another steep sell-off as fears of economic downturn were multiplied by record oil prices. Benchmark US light crude prices set another high yesterday at $103.76 a barrel in early afternoon dealing in New York.

In London, the FTSE 100 index fell by another 65.7 points, or 1.1 per cent, while France’s CAC 40 ended down 1 per cent, and Germany’s Dax lost 0.9 per cent.

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