Dollar falls to record euro low

The dollar is falling as investors worry about the US economy

The US dollar has fallen to a fresh record low against the euro as traders bet that further interest rate cuts will be needed to stem a US recession.

The euro rose to $1.5048 after hitting $1.50 on Tuesday for the first time.

Data issued on Tuesday, showing a sharp rise in US home foreclosures and another fall in American consumer confidence, weighed on sentiment.

Lower US rates tend to send investors in search of other currencies which give a better rate of return.

"Inflation - or perhaps more to the point, stagflation - remains a concern for the Fed," said Gary Thomson, an analyst at CMC Markets.

Five-year low

The latest sign of falling US consumer confidence came from the closely-watched Conference Board survey.

It said consumer sentiment fell to a five-year low in February because of growing recession fears.

At the same time, the number of US homes facing foreclosure rose 57% in January, compared with the same month of 2007.

Last month, the Fed slashed interest rates to 3% as it tried to prevent the US economy falling into recession.

"With so few consumers expecting conditions to turn around in the months ahead, the outlook for the economy continues to worsen and the risk of a recession continues to increase," said Lynn Franco, a director of the Conference Board's consumer research centre.

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.