LONDON (AFP) - The dollar came under heavy pressure Tuesday, falling against the euro to near record lows on the view that sharp cuts to US interest rates will be needed to keep the US economy on track, dealers said.
They said that with inflation data looking relatively benign, the US Federal Reserve could feel freer to slash interest rates by 50 basis points rather than the more routine 25 points when it meets at the end of the month.
Some were even ready to bet such a move could come before the Fed meeting or that the US central bank might resort to a radical cut of 75 points as the fallout from the collapse of the US housing market undermines the economy.
"Weak (US) retail sales numbers, as well as weaker than expected (wholesale price inflation) prompted renewed dollar selling as market players increased the likelihood of a 50-75 basis points rate cut by the Fed in the coming month," said Michael Woolfolk at Bank CMC Markets.
Woolfolk said he believes a 50 basis point cut is a foregone conclusion.
Remarks by former Fed chairman Alan Greenspan that the US economy was likely heading for recession came as US retail sales data showed a fall of 0.4 percent in December, the worst performance in six months and compared with analyst forecasts for a drop of just 0.1 percent.
Inflation at the wholesale level also cooled, with factory gate prices falling 0.1 percent in December.
In late European trade Tuesday, the euro was at 1.4838 dollars, down from 1.4853 dollars in early deals and 1.4866 dollars in New York late on Monday as the currency slipped off day-highs of above near record 1.49-levels.
The dollar dropped to 107.04 yen from 108.17 yen late Monday.
Dealers said all eyes were now on US consumer price inflation data due out Wednesday, with soft figures likely to put the dollar under further pressure.
The slippage in the euro meanwhile probably reflected a drop in a key German indicator of business sentiment, sparking some profit-taking.
Elsewhere, the pound sterling was firmer as UK inflation data showed the key annual CPI rate staying stubbornly at 2.1 percent in December -- above the Bank of England's 2.0 percent target -- for the third month in a row.
That perspective tempered some of the speculation that the Bank of England would have to cut interest rates sharply in coming months, dealers said.
In European trading on Tuesday, the euro changed hands at 1.4838 dollars against 1.4866 late Monday, at 158.85 yen (160.83), 0.7546 pounds (0.7598) and 1.6204 Swiss francs (1.6249).
The dollar stood at 107.04 yen (108.17) and 1.0922 Swiss francs (1.0927).
The pound was at 1.9666 dollars (1.9561).
On the London Bullion Market, the price of gold rose to 913 dollars an ounce from 902 dollars late on Monday.
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