US dollar touches a new euro low

The US dollar tumbled to yet another new low against the euro, as speculation mounted that US interest rates would be cut again next week.

The euro hit $1.4394 by late trade in New York, breaking the record set last Friday, when one euro bought $1.4319.

And the pound hit a three-month high against the dollar at 2.0574.

A slew of weak data - including a drop-off in durable goods sales and plummeting demand for new homes - has underlined woes in the US economy.

Rate cut risks

The Federal Reserve is due to meet next week, having last month reduced interest rates from 5.25% to 4.75% in a bid to rejuvenate the economy.

And many observers expect a further rate cut to at least 4.25% as policymakers try to lift the economy, which is showing increasing signs of suffering from a slump in house prices and higher credit costs.

"The run of downbeat economic data out of the US is underlining the fact that the Fed's last rate cut of 50 basis points clearly hasn't been sufficient to kick-start demand," said CMC Markets analyst James Hughes.

However, there are risks associated with further rate cuts, economists say.

While they can jump-start the economy, they can also weaken a currency as they encourage investors to transfer funds to currencies where they can get higher returns.

And there is a risk of inflation becoming a greater problem if money is made cheaper to borrow, encouraging more consumer spending and takeover activity.