LONDON (AFP) — The dollar hit a new record low against the euro Friday after Federal Reserve chairman Ben Bernanke painted a gloomy picture of the US economy that fuelled speculation about another US rate cut, dealers said.
The euro jumped to an historic high of 1.4752 dollars in early European trade, also a day after the European Central Bank kept its key interest rate at 4.00 percent.
The European single currency later stood at 1.4737 dollars, from 1.4676 in New York late on Thursday.
"Not even Bernanke's reference to the upside risks for inflation has been able to deter (US) rate cut expectations among investors, in particular as the economic slowdown against the background of rising inflationary pressures can only be considered to be detrimental for the dollar," Commerzbank currency strategist Antje Praefcke said.
In his testimony to Congress Thursday, Bernanke focused on the risks to growth and expectations of a significant slowdown in the fourth quarter and into 2008.
"Further sharp increases in crude oil prices have put renewed upward pressure on inflation and may impose further restraint on economic activity," Bernanke told lawmakers.
He said consumer spending was likely to grow more slowly in view of higher energy prices, credit issues and continuing weakness in housing.
"The market is firming up for another rate cut in December," said Tim Condon, research head at ING Financial Markets, who expects the Fed to trim rates by 25 basis points.
US interest rates stand at 4.50 percent after being cut by 75 basis points in two moves since September, making the dollar less attractive as an investment compared with the euro.
The European Central Bank left its main lending rate unchanged at 4.00 percent for the 13-nation eurozone on Thursday, as expected, and left the door open to a possible hike in the future.
ECB president Jean-Claude Trichet stressed repeatedly that his bank was closely tracking inflation but did not use the language that would signal an increase in December.
Commenting the euro's steady rise against the dollar, which has alarmed certain eurozone political leaders who see the trend as a clear threat to growth, Trichet said: "In the recent period I have observed moves that I would say were undoubtedly sharp and abrupt.
"Brutal moves are never welcome," he added, using only indirectly the code word "brutal" that has suggested in the past the ECB was ready to intervene on foreign exchange markets to stem the currency's rise.
But he stressed that "given recent developments its even clearer that a strong dollar is in the interests of the US."
In European trade Friday, the euro changed hands at 1.4737 dollars, against 1.4676 dollars late on Thursday, at 164.46 yen (165.22), 0.6971 pounds (0.6962) and 1.6510 Swiss francs (1.6551).
The dollar stood at 111.66 yen (112.56) and 1.1207 Swiss francs (1.1277).
The pound was at 2.1133 dollars (2.1073).
In London, the price of gold fell to 834.95 dollars per ounce, from 841.10 dollars late on Thursday.
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