The dollar shows no signs of strengthening

By 1300 GMT the euro had yet again hit a new all time high of $1.262, as the dollar strayed even further beyond the psychological 1.25 level.

Ongoing concerns about the US current account deficit, security, and the discovery of a case of BSE, or mad-cow disease, have all dented confidence.

Analysts are predicting that the weak dollar trend will continue into 2004, as investors favour the euro.

Battered greenback

Thio Chin, currency analyst for BNP Paribas Peregrine said the euro could rise as high as $1.30.

She added: "The reasons for the US dollar weakening this morning are not new."

"As seen from the US' current account and fiscal front, the deficits have not been narrowing."

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Since the start of 2003 the euro has gained almost 19% against the battered US currency.

New growth

The dollar has also continued to suffer against the yen.

Despite the intervention of the Japanese government, which has tried to prevent an overly strong yen from hurting its exports, it is still worth more than $1.06, trading as high as $1.0688.

Even though there are increasing signs that the US economy is starting to motor, many investors are now more concerned about the country's widening deficits.

The US current account deficit - the balance between what the US buys in goods and services and what it sells - is expected at about 5% of gross domestic product this year.

The eurozone, by contrast, has a current-account surplus.

Flooding back?

And with US interest rates at their lowest levels in almost 50 years, it is unlikely that the money needed to narrow the shortfall will come flooding back in.

Currency strategist Aziz McMahon of ABN Amro said there had been nothing to increase sentiment in the dollar or attract new money.

"The US economy is growing strongly, but the current account deficit remains a concern, particularly when Asia is looking a more attractive place to invest."