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Dollar falls sharply as US slows Dollar boosted by economic data
(about 5 hours later)
The dollar has continued its recent decline, falling to fresh 20-month lows against the euro as concerns grow about a US economic slowdown. The dollar recovered from 20-month lows against the euro on Wednesday after it was boosted by a surprisingly large upward revision to US economic growth.
In early Wednesday afternoon trading, the dollar was hovering around $1.31 against the euro, after earlier falling as low as $1.32. With new figures showing the US economy expanded by a healthy 2.2% in the third quarter of 2006, the dollar gained against the euro to $1.316.
The dollar's continuing weakness came after US data showed a fall in both the price of goods and consumer confidence. Earlier in the day it had fallen as low as $1.32 after a fall in both the price of US goods and consumer confidence.
Analysts now predict US interest rates will have to be cut early next year. The latest US economy figures show that its slowdown is less than feared.
This decision is in the hands of the Federal Reserve, and despite the Fed's continuing comments warning against inflation, economists believe it will have to cut interest rates soon to give the US economy a boost. It also helped the dollar recover against the yen to 116.26 yen, after hitting 115.75 earlier in the day.
Strong sterling Against sterling, the dollar remained around the $1.95 level, near two year lows.
US interest rates have now been on hold at 5.25% for three consecutive months, following 18 successive rate rises until August.
The euro is becoming extremely attractive ECB council member Christian Noyer Q&A: Why dollar is falling
The yen was up against the dollar after official Japanese data showed an unexpected rise in Japan's industrial production.
It pushed the dollar down to 115.75 yen, from 116.15 yen overnight in the US.
Meanwhile, sterling was up to $1.9494 after earlier hitting $1.9545, its highest level against the dollar since December 2004.
While the Fed is expected to lower interest rates in the New Year, the European Central Bank (ECB) is predicted to boost rates for the eurozone.
Analysts said this was another factor driving the dollar down against the euro.
"The euro is becoming extremely attractive as a vehicle, a transaction, an investment and a reserve currency," said ECB council member Christian Noyer.
The ECB last raised interest rates in October to the current 3.25% level.
They have risen five times since December last year, as the eurozone economies have expanded.