Diving dollar near record low

THE dollar today dived to its lowest against the euro since mid-June, extending recent losses that have pushed the greenback to within a cent of record lows.

Analysts blamed a cocktail of damaging factors for the sell-off, including the scale of the US trade deficit, worries about the strength of economic recovery and suspicions that the White House has abandoned its long-standing strong dollar policy.

The dollar fell as far as 1.1839 against the euro, a cent away from the record low seen in June.

Against the Japanese yen, it languished at three-year lows, while on its trade-weighted index it slid to its lowest since January 1997.

Nick Parsons, chief currency strategist at Commerzbank, said concerns about the ability to finance America's ballooning trade deficit, which is expected to reach $540bn (£323bn) this year, were mounting because of a lack of freely available capital and the disappointing pace of economic recovery.

'There are also very well founded suspicions that there has been a change of policy over the dollar,' he said. 'Put together, it's a deadly combination.'

However, European Central Bank governing council member Ernst Welteke today denied the G7's recent call for exchange rate flexibility was aimed at weakening the dollar.

Sterling failed to capitalise on the greenback's fall, amid waning expectations of an interest rate increase from the Bank of England tomorrow.