Dollar on new lows against euro

The dollar was beaten down to record lows against the euro last night, fuelled by a spate of triggered selling and renewed doubts about the US economic recovery.

The move, with a 1.7 per cent decline on Monday's New York close, came after a testing afternoon for the US currency, with a new European low of $1.186 versus the euro touched in earlier trade.

This brought the dollar through a key technical level at $1.1860 and prompted large-scale selling orders.

Analysts said a breach of $1.20 was now a likely prospect, with the dollar likely to remain under pressure as long as President Bush's controversial visit to Britain continues.

Mr John Moclair, head of domestic corporate sales with Bank of Ireland Treasury and International, said the market had taken a "very negative" short-term view on the dollar for a number of reasons, including concerns over terrorist attacks.

"On a short-term basis, the market seems to take the terrorist thing as being significant, particularly while Bush is out of the country. There's also a nagging doubt at the back of people's minds about the US economy," he said, pointing to an apparent market unwillingness to place credence in recent, positive US economic releases.

Mr Moclair said the US currency's troubles were also linked to the US administration's perceived weak dollar policy.

The case against the dollar intensified yesterday on news that the US was to impose new quotas on Chinese imports, a move which immediately sparked worries over protectionism.

Against the yen, the dollar fell 0.63 per cent to 108.23 yen, while it dropped 0.7 per cent to 1.3018 Swiss francs.

"The dollar's weakness stems from many factors. The China news is one of them," said Mr Andrew Busch, global FX strategist at BMO Nesbitt Burns in Chicago.

"It is great electioneering rhetoric, but the import quotas will not stem the tide of Chinese textile imports... nor any other imports from China," he added.

The dollar was further undermined by a government report showing that net foreign purchases of both US stocks and Treasury bonds fell in September, analysts said. Net fixed income purchases by foreigners dropped steeply to $5.6 billion in September from $25.2 billion in the previous month.

- (Additional reporting: Reuters)