Dollar weakness centres on US economy concerns

The dollar fell to $1.4659 against the euro by late afternoon trade in New York, and dropped to 110.04 yen.

At the start of November, the dollar hit a record low of $1.4752 against the single European currency.

The strength of the dollar had been undermined further by weak US economic data released on Friday.

Interest rate cuts

As a growing number of US banks reveal their exposure to bad US mortgage debt, data on Friday showed the biggest drop in American industrial production since January.

As long as housing remains a downside risk, people will think the Fed is biased to cut rates in the near term

David Watt, senior currency strategist, RBC Capital Markets

Taken together, analysts say this suggests further cuts in US interest rates.

"There are no fundamental reasons to buy the dollar," said Tsutomu Soma, senior manager of foreign securities at Okasan Securities.

The US Federal Reserve last cut interest rates in October to 4.5%, in an effort to kick-start the faltering housing and credit markets, as well as making borrowing cheaper to encourage consumer spending in the run-up to the key Christmas shopping period.

Despite signalling that it will adopt a wait-and-see approach to the future direction of interest rates, most economists expect a further cut in rates when Fed officials next meet in December.

"Are there inflation fears in the United states? Yes," said David Watt, senior currency strategist at RBC Capital Markets in Toronto.

"But as long as housing remains a downside risk, people will think the Fed is biased to cut rates in the near term."