The market is basically buying into a US recovery

Lee Ferridge Rabobank

In a testimony before the US Senate's Budget Committee on Thursday, Mr Greenspan expressed cautious optimism about a US recovery, which gave a boost to the US currency.

The euro shed a full cent against the dollar to $0.865 in last European trade.

Against the Japanese currency, it lost more than a full yen to stand at 116.92 yen.

Little sign of eurozone recovery

The fall in the euro diminished hopes at the European Central Bank (ECB) that the launch of euro notes and coins at the start of this year would give the euro a much-needed boost in the currency markets.

Analysts also said the fall in the euro's value could decrease the chances of an interest-rate cut by the ECB in February.

This is because any cut in the European rates would make holding the euro even less attractive to investors.

"The market is basically buying into a US recovery. So far there is little sign of improvement in the economy in the eurozone," said Lee Ferridge, head of global currency strategy at Rabobank.

Barclays Capital is predicting that the euro will fall as low as $0.77 over the next year.

Pound doing better

The British pound also eased against the dollar, falling to $1.411 from $1.4244 on Thursday.

On Friday, the latest gross domestic product figures showed that the UK economy grew 0.2% in the last three months of 2001, slightly ahead of forecasts of 0.1%.

"The UK has been the best performer of the G7 in 2001, it seems, and that will continue for a while probably," said Jane Foley, an economist at Barclays Capital.

Analysts said sterling's fall was influenced by comments from politicians on the prospect of the UK joining the single currency.

Such a move would probably be accompanied by a fall in the value of the UK currency.