The euro has continued to fall as evidence mounts that the US economy is going to avoid a hard landing.

The single currency hit 10-week lows against the dollar in New York last night as US productivity figures came in higher than expected. It fell to 89.86 cents and also hit 11-week lows against sterling.

The euro closed earlier in Europe at $0.9010 having opened after the holiday weekend at $0.9080. Against sterling it closed at 59.90p from an opening of 60.10p. In consequence the pound closed at 76.03p against sterling from 76.31p.

The dollar was buoyed by figures showing that US worker productivity grew in the second three months of the year at more than double the pace of the previous three months and labour costs fell.

Productivity, a measure of output per hour worked, rose at a 5.3 per cent annual rate in the second quarter after a 1.9 per cent rate of increase in the first quarter. The increase over the last 12 months was the largest in 17 years.

According to Mr Jim Power, chief economist at Bank of Ireland, the important message is that the output of the US labour force is continuing to outpace wage growth. "This is further confirmation of the new economy and an indication that the US economy can sustain a much stronger growth rate in the long term."

Because of the productivity gains, labour costs fell at a 0.1 per cent rate in the second quarter after rising at 1.9 per cent pace in the first.

US Federal Reserve officials have said productivity is a key reason the economy has been able to grow faster without causing inflation to accelerate.

Mr Power added that the relaxed prognosis of the Federal Reserve chairman, Mr Alan Greenspan, for the economy last month now appeared to be totally vindicated.

The euro also failed to benefit from news that Germany's unemployment rate fell to the lowest level in almost five years in July as surging exports encouraged companies to hire new staff.

The unemployment rate fell to 9.5 per cent, the lowest since August 1995, from 9.6 per cent in June. The number of unemployed people fell by 9,000, and is likely to decrease further in coming months, the Federal Labour Office reported. Mr Power said the euro is likely to remain under pressure for the remainder of August as trading conditions are very thin and it could well test its previous low of $0.8844.

However, a bounce is likely as investors perceive good value and that should certainly arrive by the end of the holiday period in September, he added.