In another volatile day on the currency markets, the dollar recovered some poise against the euro on Wednesday after an unexpectedly large upward revision to US growth.

Official data showed that US gross domestic product grew at an annual rate of

2.2 per cent in third quarter against an estimated 1.6 per cent and consensus forecasts of a 1.8 per cent rise.

The news helped the dollar climb 0.4 per cent to $1.3150 against the euro by mid-afternoon in New York, its first rise for six days.

However, it was a volatile ride. The dollar tumbled to a fresh 20-month low of $1.3218 against the euro in Asia trade after the market brushed off comments from Ben Bernanke, chairman of the US Federal Reserve.

Speaking in New York overnight, Mr Bernanke struck a hawkish tone on US interest rates, saying that inflation in the US remained “uncomfortably high”.

Analysts said that, while it might be something of a surprise that the dollar had failed to derive support from Mr Bernanke’s remarks, he might be in danger of “crying wolf” over US inflationary pressures.

Stephen Lewis, economist at Insinger de Beaufort, said the fact that the markets ignored Mr Bernanke’s warning raised questions over the Fed’s credibility.

“Market participants think they know better than the Fed where the economy is headed,” he said.

“If they persist in this belief, they may begin to doubt the competence of the Fed and its ability to deliver steady growth and low inflation.”

Elsewhere, the dollar fell 0.1 per cent to Rmb7.8313 against the renminbi, its lowest level since the Chinese currency was revalued and depegged from the greenback in July 2005. The move came after Hank Paulson, US Treasury secretary, called for greater foreign exchange flexibility from Beijing. There were rumours that a change in the way China manages its foreign exchange operations had been responsible for recent global market volatility.

There was talk that an agreement had been reached over exchange rate policy between China and its main trading partners at the G20 meeting of finance ministers and central bankers in Melbourne earlier this month.

“It is very noticeable that both the current dollar slide and the pick-up in the pace of appreciation in the renminbi date from that weekend,” said Simon Derrick, currency research chief at Bank of New York.

The euro posted a record high of Y153.45 against the yen amid an increasing perception that European policymakers seemed unconcerned about the potential for the single currency’s strength to dent exports.

However, the yen was boosted later in the session after Japanese industrial production data came in well above forecasts, heightening expectations that the Bank of Japan might raise interest rates as early as December.

The yen duly pared back its losses against the euro to stand up 0.3 per cent on the session at Y152.85.

Against the dollar, the yen rose to a high of Y115.59 on the news before giving back its gains to stand flat on the session at Y116.20 as the dollar rallied after the US growth figures.

Sterling hit a two-year peak against the dollar and came within touching distance of its strongest level for 14 years. The pound traded as high as $1.9545 against the dollar in early trade. A break higher than $1.9548 would have sent the pound to its highest level against the greenback since its ejection from the European Exchange Rate Mechanism in September 1992.

Traders said that the current volatility on the foreign exchange markets had seen fundamental factors take a back seat as short-term investors made a series of assaults on key technical levels in sterling/dollar.

However, sterling later pulled back to $1.9490 against the greenback, down 0.2 per cent on the session.