Investors abandoned the dollar yesterday, sending the US currency to a new low against the euro and pushing the price of gold up to levels not seen in 14 years.

Remarks by Federal Reserve governor Mr Ben Bernanke that interest rates should stay at their present lows for some time, despite the improving US economy, were blamed for the fall which saw the dollar hit $1.2695 before recovering slightly. It closed last night at $1.265.

The dollar also fell to $1.81 against sterling, a level not seen since 1992 when the British currency was falling out of the Exchange Rate Mechanism.

The prospect of interest rates remaining low is likely to encourage the outflow of funds from the United States to higher-yielding currencies at a time when the United States needs capital inflows to cover its current account deficit.

The US external shortfall - a major worry of international investors - is also likely to come under growing pressure because economic recovery could lead to more imports.

The exodus from the dollar saw gold surge to to 15-year highs above $425 an ounce.

Ulster Bank Treasury economist Mr Niall Dunne said the dollar was likely to hit $1.30-$1:35 before markets would countenance a sustained recovery, although he held open the prospect of short-term gains fuelled by positive economic data such as last week's purchasing manager figures or jobs data due out on Friday.

Dr Dan McLaughlin, chief economist at Bank of Ireland, said the dollar looked massively oversold while acknowledging that sentiment towards the currency was "pretty awful".

He also reflected Mr Bernanke's comments that it was a mistake just to look at the dollar's sharp drop against the euro. The Fed officials noted that the dollar's fall against a broad basket of currencies had been much smaller.

Dr McLaughlin said the US's main concern was the level of the dollar against Asian currencies but it was struggling to alter this as many were linked to the dollar and efforts to revalue against others, such as the yen, were being frustrated by central bank intervention in those states.

He said the sterling/euro rate was more important to indigenous Irish business and that had remained relatively stable recently.

Yesterday, sterling rose half a penny against the European currency.