The dollar's slide continued unabated yesterday, taking the US currency to five-month lows against the euro and new two-month lows against the yen.
Dr Dan McLaughlin, chief economist at Bank of Ireland Group Treasury, said that a stronger euro combined with slowing economic growth and lower euro-zone inflation signal that an interest rate cut by the European Central Bank is now appropriate. "There is now a strong chance of a rate cut by the end of the month fuelled by concerns about slower economic growth in the euro zone" he said.
Mr Austin Hughes, chief economist at IIB Bank also believes euro-zone inflation data for July - due out on Friday - will be sufficient to prompt a cut in interest rates. "The inflation numbers are sufficient to give the ECB an excuse to move at the end of the month. The data should make the more hawkish members of the ECB more comfortable about cutting interest rates," Mr Hughes said.
Most economists suggest the ECB could cut interest rates by between 0.25 and 0.5 of a percentage point.
Further gains by the Euro are possible today as sentiment towards the dollar and the US economy remained fragile after the International Monetary Fund published a report on the US economy on Tuesday.
It said the US current account deficit was unsustainable and that the dollar could face a sharp depreciation.
"The IMF has said all this before," said Ian Gunner, FX strategist at ABN Amro. "The market's reaction says more about sentiment than the report itself."
A 0.4 per cent fall in US business inventories in June, in line with expectations, and better-than-expected industrial production figures for July, failed to do more than temporarily halt the dollar's decline.
"We've got a market ignoring negative news for the euro and pretty much ignoring positive news for the dollar," said Ray Attrill, director of research at 4cast consultancy.
By the middle of the New York session, the euro was at $0.9113, off an earlier high of $0.9143.
Analysts said the dollar's latest fall against the euro accelerated after the US currency was hit by further losses against the yen.
Sterling rose to $1.4396 against the dollar, compared with Tuesday's closing price in London of $1.421.
But the euro rose against sterling as far as £0.6358, up from Tuesday's price of £0.632.
Good UK economic news was capable in any case of exerting only a limited effect on sterling, given the fear of buying the pound too high while future euro-zone entry remained on the cards, said David Bloom, currency economist at HSBC Bank.
Mr Bloom added: "When euro-sterling falls to £0.60, politics matters. When it moves towards £0.65-67 about right for euro-zone entry economics matters."
