The dollar has resumed its upward momentum, reaching three-month highs against the euro as investors pinned their hopes on a rapid end to the conflict in Afghanistan.

The dollar had sunk to recent lows of just under $0.90 against the euro in the immediate aftermath of the latest plane crash in New York. However, investors were calmed by news that it appeared to have been a tragic accident and not linked to the September 11th attacks. And, as reports came in that US-backed anti-Taliban fighters had entered the Afghan capital of Kabul, the dollar leapt as much as 1 per cent.

However, not all analysts believe this is justified. "Some people are talking about a peace dividend on Afghanistan, which I think is a bit exaggerated, but certainly they are eager to see a resolution to the conflict there," said Mr George Hodgson, European strategist at ABN Amro in London.

Following the terror attacks on New York, Washington and Philadelphia, the latest crash in New York raised fears of another jolt to public confidence in air travel and to wider consumer sentiment. Immediately after the crash, European and US stocks and the dollar fell sharply as investors fled to safe havens. As fears subsided yesterday morning, the euro retreated to around $0.8910. Later in the session, the currency was trading at $0.8790.

The euro's renewed decline was also blamed on data showing an unexpected rise in French consumer prices in October, denting the prospect of further growth-boosting interest rate cuts from the European Central Bank. Inflation picked up to 1.8 per cent from 1.5 per cent in September. This increases the risk that euro-zone inflation may not decline in October from 2.5 per cent.

"We see a very real risk now that the euro zone will see recession this winter," said Ms Jane Foley, a strategist at Barclays Capital in London. That concern is "weighing on the euro".

Mr Jim Power, investment director at Friends First said the markets were still convinced the US economy stood a better chance of recovery than Europe. "Despite the problems in the US, the euro is seen as having worse problems and confidence remains low."

But the main factor bolstering the dollar was entry into Kabul by opposition forces. "The Taliban's position as government of the country is over," Mr Qazi Amin Waqad, an exiled Afghan religious leader in Peshawar, Pakistan, said and the markets were quick to take note.