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Last Updated: Monday, 22 October 2007, 21:44 GMT 22:44 UK
US dollar touches a new euro low
Euro coins on dollar note
The value of the dollar has been on a downward spiral
The US dollar tumbled to a new euro low in Asian trade as concerns over the state of the US economy deepened.

The euro traded as high as $1.4348, breaking its last record set on Friday when one euro bought $1.4319.

The sell-off was triggered on Friday by a profit warning from building equipment giant Caterpillar, prompting concerns over the slowing US economy.

But the dollar bounced back to trade at $1.4181 against the euro bloc's currency at the close of trade.

The greenback also slipped to a six-week low againt the Japanese yen on Monday, touching 113.25 yen at one point, but gained against the British pound to trade at $2.0322 after initial falls.

The dollar could weaken further if the US Federal Reserve cuts interest rates again at its meeting at the end of the month, making the US currency less attractive for income seekers.

Meanwhile, the strong euro is a threat to exporters, such as Airbus owner EADS, and to the wider region's economy, which has just started to recover after years in the doldrums.

Suffering continues

The latest falls come after a joint International Monetary Fund and World Bank meeting in Washington last Friday, which ended without any reference to the weakness of the US dollar or the strength of the 13-member Euro bloc's currency.

Analysts say this apparent indifference suggests central bankers have no intention of interfering in this area of the currency market, a cue for investors to carry on selling dollars.

They believe that the US Federal Reserve will have to cut interest rates further at this month's meeting from their current level of 4.75% to lift the economy, which is showing increasing signs of suffering from a slump in house prices and higher credit costs.

At its September meeting, policymakers cut rates from 5.25% to 4.75%.

Yet, at the same time, traders have become more averse to risky investments and have started selling global equities that they bought with money borrowed from countries such as Japan, where the interest rate is 0.5%.

As the use of this strategy comes to an end, currencies that generate a higher income than the Japanese yen, including the euro, dollar and sterling, will all feel the pressure.

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