The dollar fell to a record low against the euro today as sterling breached the $2 mark after oil nudged a new high of $106 a barrel and the British and European central banks voted to hold interest rates.

The greenback weakened to $1.5370 on the euro, representing a new high for the currency since its introduction in 1999, as Jean-Claude Trichet, president of the European Central Bank (ECB), said it would do "what is necessary" to protect the Eurozone against rising inflation.

The ECB held interest rates at 4 per cent, with all 21 members of the rates setting council voting in favour of a hold, as it increased inflation expectations for 2008 from 2.5 per cent to 2.9 per cent and reduced gross domestic product forecasts from 2 per cent to 1.7 per cent.

Mr Trichet said: "The firm anchoring of medium to long-term inflation expectations is of the highest priority to the Governing Council. The current monetary policy stance will contribute to achieving this goal."

At the same time, the dollar dropped against sterling from $1.9916 to $2.0027 as oil nearly broke through $106 a barrel when traders panicked after a small explosion in New York and US stockpiles of crude oil unexpectedly fell by 3.1 million barrels last week.

Earlier today gold headed towards a new record of $991.90 an ounce but fell back to $975.50.

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