Dollar falls to record euro low

With investors fearful that the ongoing downturn in the US housing market will start to slow the economy, the euro rose as high as $1.3741 on Tuesday.

The pound touched as high as $2.0274, as it continued its recent gains.

The dollar's latest fall came after the key Standard & Poor's credit rating agency said it may downgrade $12.1bn (£6bn) in sub-prime mortgage debt.

Housing worries led to nervousness on US markets, with the Dow Jones benchmark index falling 148 points to close at 13,502

Interest rate boosts

Sub prime mortgages are increased-risk loans given to borrowers with a poor credit rating or those on low incomes.

"It is evident the [US] market remains concerned about the sub-prime mortgage fallout on the financial sector"
Economist Melinda Smith

Q&A: Strong pound

House repossessions in the sector have reached record highs this year.

Both the euro and the sterling have also benefited from recent interest rates rises by the European Central Bank (ECB) and the Bank of England.

While the ECB has kept eurozone rates on hold at 4% this month, they have doubled in 18 months, and more rises are expected by the end of the year.

The Bank of England last week increased rates to 5.75%, and most analysts expect a further rise before the end of the year, as both it and the ECB move to slow inflation.

US interest rates were kept on hold at 5.25% following the Federal Reserve's most recent rate-setting meeting last month.

It was the eighth time in succession that the Fed had left rates unchanged.

"It is evident the [US] market remains concerned about the sub-prime mortgage fallout on the financial sector and the housing market," said ABN Amro economist Melinda Smith.

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