The single currency rallied to a fresh record high of 1.5572 against the dollar as firms from Citigroup Inc. to Goldman Sachs Group Inc. said the Federal Reserve's plan to inject $200 billion into the banking system may fail to break the freeze in money-market lending.

Euro started to climb versus the dollar in European morning on Wednesday after the release of better-than-expected eurozone industrial production which showed an increase of 0.9% in January (forecast was 0.4% rise), the first time in three months. The euro interbank offered rate for three-month euro loans rose a seventh day, by 1 basis point to 4.61%, the highest since Jan. 7.

However, ECB's Bini Smaghi said FX volatility is undesirable for growth and ECB 'absolutely' still aiming for inflation below but close to 2%. ECB President Jean-Claude Trichet said he was concerned about excessive currency moves.

Interest-rate futures showed a 78% chance that the Fed will cut its rate as much as 0.75 percentage point on March 18 to avert a recession. The greenback tumbled to a record low of 1.0128 against the Swiss franc on Wednesday due to dollar’s broad-based weakness on the retreat in U.S. stocks. The Standard & Poor's 500 index fell 0.9 percent, trimming Tuesday's rally.

Two-year U.K. bonds fell the most in a decade after Chancellor of the Exchequer Alistair Darling said the U.K. government will raise taxes and borrow an additional 20 billion pounds ($40 billion) in the next four fiscal years as higher credit costs slow economic growth.

Thursday will see the release of Japan’s industrial production and capacity utilization, U.S. import price index, retail sales, jobless claims and business inventories.