The Dollar fell on Tuesday as talk of higher Euro-zone interest rates prompted investors to increase exposure to the Euro. Concern about further credit-related losses and their impact on financial markets also sent the Dollar tumbling against the low-yielding Yen and Swiss franc, while a record high in oil added to fears about surging price pressures. The remarks from Wolfgang Franz, the president of the ZEW economic research institute, offset the second straight monthly decline in the ZEW's investor sentiment survey and dovetailed with a separate report showing German producer price inflation at a 20-month high.

EurUsd rose to 1.5680, three-week high, after an adviser to the German government said the ECB may soon raise interest rates. It last traded at 1.5649, up 0.78%. GbpUsd rose 0.93% 1.9672, while UsdJpy fell 0.78% to 103.66 and UsdChf fell 145% to 1.0369.

Analysts are still concern about the credit crunch and even said the crisis would extend into 2009 and beyond, setting up three years of multibillion-dollar revenue losses.

There was little reaction in currency markets to the Bank of Japan's decision to keep its borrowing costs on hold at 0.50%, as expected, on Tuesday. The ECB has held its benchmark rate at 4% since last June as record oil prices have pushed inflation higher. The Federal Reserve, by contrast, has slashed rates from 5.25% to 2% since September but has since signaled a pause in its rate-cutting campaign.

Crude surged to a new record above $129.67 on Tuesday, boosted partly by the weak Dollar and fears that high global demand will strain supplies.