Euro reaches new 2-year high

The euro rose to a two-year high Wednesday but stopped short of hitting its all-time record, even as the British pound reached a 26-year high after breaking the $2 mark this week.

The rise of both currencies makes Europe more expensive for U.S. visitors, but shopping trips to the United States more enticing for Europeans.

The 13-nation euro rose to $1.3614, a level not seen since December 2004, before falling back to $1.3585 in afternoon European trading. That was down from $1.3593 late Tuesday in New York, although still less than a penny short of its all-time high of $1.3667, also from December 2004.

The pound rose as high as $2.0132, then settled back to $2.0069 _ up slightly from the $2.0066 it fetched late Tuesday in New York.

The rise of the euro and pound indicate that Europe's economy is performing better than expected and not wavering amid fears of a slowdown in the United States and booming competition from China.

The spike came after a new report showed that U.K. wages rose at their fastest rate in almost three years from December to February, helped in part by the bonuses paid to financial services workers.

The last time the pound was so high was in June 1981, the year Ronald Reagan took over the White House from Jimmy Carter.

Global Insight analyst Howard Archer said the pound is likely to remain above the $2 level, which it breached Tuesday, as interest rates rise. Inflation figures released Tuesday suggest that the Bank of England will keep raising rates.

The euro has been helped toward historic levels by healthier European growth, continuing interest rate rises by the European Central Bank and concern over the strength of the U.S. economy. That means a price shock for some visitors to the continent.

"This is my second visit to Italy and I can notice a price rise, compared with my first trip five years ago," said Yen Wei-Min, a 41-year-old businessman from Taiwan visiting Rome this week. "My next holiday is going to be in a cheaper country, probably in Southeast Asia, in places like Thailand or Vietnam: beautiful but inexpensive."

In Paris, Jenny Sommerville, a 20-year-old from Boston, Massachusetts on a week-long holiday to France, said she felt the pressure of the strong euro.

"I try to cut corners where I can, like buying my food at the supermarket, but it's not easy," she said.

The euro is "enjoying a steady run of gains over the dollar with lackluster U.S. economic data helping buoy the common currency," said David Jones, chief market analyst at CMC Markets in London.

The Federal Reserve has kept its interest rates on hold over recent months amid mixed signals about the economy, even as the ECB and Bank of England have raised their rates.

The dollar also fell against Japan's currency, dropping to 118.29 yen from 118.95 yen late Tuesday.