Page last updated at 19:42 GMT, Thursday, 11 September 2008 20:42 UK

Economic gloom depresses the euro

Money changer with dollars and euros
Falling confidence in the eurozone economy has hit the single currency

The euro has hit a fresh one-year low against the US dollar amid renewed worries about the health of the European economy.

The single currency fell as low as $1.3882 in Thursday trading - its lowest level since September 2007. It later edged up slightly to $1.3942.

An increasingly gloomy outlook for the eurozone region has hit the euro hard.

The European Commission believes some countries in the European Union are on the brink of recession.

The dollar, meanwhile, has benefited as US investors have sold assets in emerging markets, preferring to hold their own currency during a time of global economic uncertainty.

"We continue to see investors repatriating money from overseas holdings given how uncertain the global environment has become," said Sophia Drossos, a currency strategist at Morgan Stanley in New York.

European jitters

The commission has said that three countries - the UK, Germany and Spain - would see two negative quarters of economic growth in a row this year and would therefore be considered to be in recession.

The commission also downgraded its growth outlook for the second time this year.

It said the 15-nation eurozone would now grow by 1.3% this year, against previous projections of 1.7%.

As a result, some analysts are predicting that the euro will continue to be weak and fall to around $1.30.

"As Europe and even emerging economies struggle from the fall-out of the sub-prime crisis, there is sentiment that the US is doing relatively well compared with the rest of the world," said currency analyst Saburo Matsumoto at Sumitomo Trust Bank.

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