Forex

HONG KONG- The US dollar plunged to a fresh record low against the euro in late morning Asian trade on Thursday as investors dumped the currency on the bleak economic outlook of the US and expectations of further interest rate cuts.

The dollar also touched a new 12-year low against the yen.

The dollar continued its descent even after President Bush was quoted in a radio interview that he preferred a strong currency to help deal with inflation and bring down record high oil prices.

'He (Bush) wants a strong dollar but he is not doing much to realize a strong currency. They need to show more to encourage people to buy the dollars. People are selling the dollar because of expectations of a further lowering of interest rates,' said Tomoko Fujii, head of economic strategy at Bank of America.

At 11:34 am (0334 GMT), the euro was trading at 1.5585 dollars, the greenback's weakest since the common currency began trading in January 1999.

The dollar was quoted at 100.35 yen, a level not seen since December 1995, according to traders.

Fujii expects the dollar to weaken further to 1.58 against the euro and to 98 versus the yen by the end of June.

The dollar was also weighed by uncertainties on the size of the rate cut the Federal Reserve is likely to implement next week, said Thomas Lam, senior treasury economist at United Overseas Bank.

'One of the uncertainties that appears to be pestering the market at this time is the eventual outcome of the Fed policy decision with regard to the target fed funds rate at next week's meeting -- specifically on the magnitude of the rate cut,' said Lam.

'It seems to me that the debate on Fed policy at this juncture is like trying to value abstract art. In light of the fluidity of the current situation, the decision to go with either a 50-basis-point or 75-basis-point reduction next week probably entails a high degree of subjectivity from policymakers.'

A weak dollar, while making it difficult for US policymakers to curb inflation, is helping the nation boost its exports, which should counter the slump in its housing and financial sectors, rising unemployment rates and declining consumer spending.