The euro reached a five-month peak against the dollar in thin holiday trading yesterday and also reached a 10-month high versus the yen after a new instalment of dismal Japanese economic data. The dollar also gained against the Japanese currency but lingering concerns over an economic slowdown in the US meant the dollar did not recover ground lost to the euro's pre-holiday rally. The European single currency has strengthened steadily recently, bolstered by sentiment that Europe is best placed to withstand a global economic slowdown. Last night the euro was at $0.9292 compared to Friday's close of $0.9231. European financial markets were closed and although the US market was officially open, trading was thin as no US economic data was expected.

"There is a little bit of a rally in the euro, whether or not there is any follow through, I don't know," said Mr John Hazelton, a trader at PNC Bank in Pittsburgh. "Eventually there will be, but it is an awfully thin market." The euro went over $0.93 for the first time since late July in overnight trading in Far East. It gave up some its gains when US markets opened.

Dollar weakness has been prompted by fears that the US Federal Reserve may have to lower interest rates as the world's largest economy cool downs after a decade-long boom.

Europe's politicians have already started to talk up the recovering single currency. In an interview published by the Paris newspaper Le Figaro, Germany's Finance Minister, Mr Hans Eichel, said yesterday that the euro was on a new track.

The US slowdown "will be a fundamental global change and therefore a major basis for change in the euro-dollar exchange rate."

Mr Eichel called on European officials to stress the need for a strong currency in their public comments. "First of all a certain discipline should be observed as far as commentaries are concerned . . . then it should be stated clearly that we want a strong euro," he said.

The yen's weakness followed a slew of negative economic data published on Christmas Day. Spending by wage earners and retail sales figures were both down showing that the consumer remained the missing element in Japan's economic recovery. Retail sales fell by 0.7 per cent year on year in November while wage earner's real spending fell 2.3 per cent.

Unemployment also rose to an eight-month high of 4.8 per cent in November and consumer prices fell for a record 15th consecutive month.