The euro has fallen to its lowest levels against sterling and the yen.

The currency was undermined by optimism about the Japanese economy and by expectations that the European Central Bank would not raise interest rates when it meets today after millions of German workers in the key engineering industry agreed to a moderate pay deal.

Against sterling, traders said the euro was weakened by comments from Bank of England governor Mr Eddie George and other bank officials, who said monetary policy to weaken sterling would bring only short-term relief to exporters, at the cost of doing longterm damage to the economy.

The euro closed at $0.9509 from $0.9650 a day earlier and at 59.92p against sterling from 60.83p.

As a result the pound closed at 76.06p against sterling from 77.23p.

ABN Amro is now predicting that the euro will fall to 88 US cents over the coming months.

A European roadshow in Dublin was told yesterday that continuing capital flows out of the euro and into the dollar meant there was little hope any time soon of the single currency recovering value.

ABN Amro chief economist in Ireland Dr Dan McLaughlin said the continuing flows out of the euro meant people were not really investing in the euro zone yet.

On top of that there were arguments about the relative growth rates in Europe and the US. Europe was expected to grow by 3 per cent this year but the US would grow by 4.5 per cent.

At the same time sustainable growth in the US was estimated at 3.5 per cent or 3.75 per cent, whereas the euro zone rate was estimated at 2.75 per cent.

He added that technical measurements also backed the dollar over the euro, which had failed to break out of its downward channel.