The euro has fallen to fresh lows against the US dollar as prospects for the US economy brightened further. The currency is now skirting close to parity with the dollar.

The euro fell to $1.0136 from $1.0195 on Friday as the market began to eye $1.005, its next likely stop before parity. It also fell a little against sterling, closing at 65.23p from 65.67p on Friday. In consequence, the pound closed at 82.75p against sterling from 83.38p.

Dr Dan McLaughlin, chief economist at ABN Amro, said the US dollar reached its new highs after consensus forecasts for US growth were revised up to 4 per cent again - from 4 per cent last year - continuing to defeat expectations of a slowdown.

European Union finance ministers meeting in Brussels also provided little support.

The euro now seems set to fall to parity with the dollar, presenting fresh worries about Irish inflation. Dr McLaughlin pointed out that the euro's decline when combined with the rise in oil prices is very worrying for inflationary outlook.

He pointed out that crude oil prices have risen from $12 a barrel in January to $18.50 yesterday, a 54 per cent rise. However, in euro terms the rise is even more extraordinary - at 80 per cent - because of the decline of the euro against the dollar in that time.

And this, if sustained, could lead to around 2 percentage points on the rate of inflation, he added.

It also undermines the benign global inflationary environment since last year, which has been a major factor holding Irish inflation down.

While the strong outlook for the US economy is supporting the US dollar, the uncertain outlook for the euro zone economies is undermining the euro. German industrial output fell slightly in May, data published by the finance ministry yesterday showed.

Industrial output fell by 0.2 per cent in May from the figure for April, with only the manufacturing sector able to increase production, the ministry said in a statement.

Manufacturing output rose by 0.4 per cent in May from April, while output in the mining sector slumped by 5.5 per cent, energy output declined by 3.3 per cent and construction output was down by 1.3 per cent, the data showed.