The dollar index rose 0.6 per cent to 90.84 this morning, its highest level since 2006.
The index, which measures how the dollar is performing against its trading partners, was nudged up as comments from European Central Bank (ECB) president Mario Draghi pushed the euro to a four-year low.
Draghi hinted this morning that the ECB could be ready to buy government bonds if inflation expectations take another hit. The comments appeared to have an instant effect on the euro, which fell 0.5 per cent against the US dollar.
The euro fell more than 0.6 per cent to $1.2028 after the comments, while sterling fell almost one per cent to $1.5436.
Draghi was speaking to German paper Handelsblatt, when he said the risk of deflation remained real across the single currency bloc and he was prepared to act projections took another battering.
This would be a bold move - echoing the quantitative easing programmes of the US and UK - and would be popular in some Eurozone countries, but controversial in others. Germany is reported to believe the move could encourage economies on the Eurozone’s periphery to renege on restructuring commitments.
Although deflation may seem beneficial as prices drop, it would mean less incentive to spend as prices may get cheaper in the future, while debts would increase in value, relatively speaking.
After Draghi’s words, the FTSE, Dax and CAC all rose on opening.