The euro has continued to slide against the US dollar, as traders pour into the US currency with evidence growing of a slowdown in continental Europe.

The euro fell to $1.1090 - its lowest level against the US dollar in its short life - from $1.1218 a day earlier, as data out of Germany pointed to a significantly slowing economy, while numbers out of the US pointed in the opposite direction.

Sterling also slid against the dollar and the euro closed at 68.54p from 68.64p leaving the pound at 86.50p against sterling.

Mr Pat O'Sullivan, economist at AIB Capital Markets, said the news that German growth slowed and business confidence fell putting pressure on the euro. At the same time, the US trade deficit narrowed in contrast to expectations, while inflation data remained low.

The fall in the currency, which is now some 5 per cent below its levels when it was launched just six weeks' ago, is good news for European exporters but does raise some questions about the European Central Bank's credibility.

Mr Jim Power, chief economist at Bank of Ireland, said the euro would remain under strong downward pressure for the moment He added that the German Finance Minister, Mr Oskar Lafontaine's, comments last night also put serious pressure on the currency. He welcomed the euro's slide, saying it was good for European exporters.

However, it is really the ECB's reluctance to cut interest rates and the lack of movement at its meeting on Thursday that was the immediate impetus for yesterday's fall. The market believes that Europe needs weaker monetary policy to boost growth and, if it does not get it from lower interest rates, a weaker currency will deliver much the same benefits.

Other analysts were also very bearish about the currency. Mr David Coleman, chief economist at CIBC Wood Gundy in London, said it was difficult to find reasons to buy the euro at the moment. "The euro is really just a one way bet and that is down. It is turning out to be a weak currency, hampered by political interference with monetary policy."

He added that the euro was now paying the price for the European Central Bank's wrong decision on Thursday not to cut interest rates. He said the move, although designed to convince the markets that the ECB had a firm grip on euro zone inflation and monetary policy, in fact, had the opposite effect.

The desire to have credibility only makes sense if you have some in the first place, Mr Coleman said, adding that the ECB's refusal to cut rates in the face of overwhelming evidence of an economic slowdown in Europe, smacked of politics and not economics.

According to Mr Power, the euro could now fall to about $1.09 which is around the old deutschmark rate of $1.80 which usually proved difficult to get through. However, he said there is now a real possibility it would fall through that and go as low as $1.05. That would mean a rate for the pound of as little as 84p against sterling, he added.

The European Central Bank, in its monthly report earlier this week, said that it saw little evidence that the weak industrial sector would drag down healthy private consumption. However, that may now be under question and a further slowdown in euro zone growth is now a real possibility.