The euro rose to fresh record highs against its US rival on Thursday, reaching 1.3927 dollars in early European trade, while some economists forecast it could top 1.40 dollars very soon.
The European single currency Wednesday broke above 1.39 dollars for the first time since its creation in 1999, on expectations that the US Federal Reserve will next week trim interest rates from their 5.25-percent level.
After reaching a fresh all-time high of 1.3927 dollars on Thursday, the euro stood at 1.3918, compared with 1.3839 dollars in New York late on Wednesday.
"The catalyst sending the euro to its latest high against the dollar is the growing expectation that the Fed could trim interest rates by up to 50 basis points at its 18 September policy meeting," Global Insight economist Howard Archer said.
"The euro seems likely to remain well supported against the dollar in the near-term at least and could well break through 1.40 dollars imminently."
Investors are increasingly worried that the US economy may be heading towards a recession owing to a downturn in the American property market.
The Fed is set to cut rates "due to the danger that the current credit squeeze and subprime mortgage problems will increasingly spill over to significantly weaken already fragile US growth," Archer added.
Roller-coaster volatility has gripped financial markets since early August as concerns about high-risk home lending in the United States have prompted investors to reassess their overall risk exposure.
"Much of the weakness in the dollar can be attributed to intensifying concerns about the US economy but if the Fed does cut (rates) as we expect, it may be able to help avoid deeper damage to the economy as lower rates provide a stimulus," Calyon economist Mitul Kotecha said Thursday.
"Although a 50 basis points move by the Fed next week cannot be ruled out, it would smell of panic and instead the Fed is likely to pursue a more gradual pace of rate cuts over coming months, with the Fed Funds rate set to fall to 4.50 percent by year end," Kotecha added.
While the Fed is on course to cut rates, by contrast, the European Central Bank seems poised to tighten its monetary policy and to hike its key rate by at least a quarter point to 4.25 percent before the end of 2007.
"Relatively healthy eurozone economic activity and higher (eurozone) interest rates have (also) supported the euro," Global Insight's Archer added.
The European single currency -- the common currency of the 13-member eurozone -- was created on January 1, 1999.
The 12 countries that joined from its inception were: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
Slovenia joined on January 1, 2007, following its admission to the European Union in 2004, becoming the first former communist state to adopt the euro.
