The decline of the US dollar shows no signs of relenting, with the euro hitting yet another record high yesterday. As the euro went above $1.28 , some analysts predict that it is set to breach the $1.30 barrier in the near future.

The euro traded as high as $1.2812 yesterday before closing at $1.275 amid consistent selling of the US currency as market volumes pick up again after the Christmas break.

Only suspected intervention from the Japanese authorities stopped the dollar hitting a new low against the yen, while against sterling it traded as $1.8155, an 11-year low.

The euro has gained 15 per cent against the dollar in the last two months, which will hit exporters from the euro zone to the US, as well as holding down inflation by pushing down dollar denominated import prices.

Irish industry has a considerable exposure to US markets and exporters will feel the squeeze on their profit margins. Those importing from the US, however, will benefit.

Companies with US subsidiaries or investments will suffer if the dollar decline continues as they will lose out when translating profits back into euros.

The latest rise in the euro has generated speculation that the European Central Bank may decide to cut interest rates again to try to offset the impact of the falling dollar on growth and inflation. The ECB's governing council meets in Frankfurt tomorrow.

However, Mr Austin Hughes, chief economist at IIB Bank, said he believed the ECB would need to see firm evidence of a negative impact on European economic activity before cutting rates. The dollar now looks certain to be discussed at February's meeting of the G7 finance ministers in Florida.

The dollar's recent weakness is due mainly to concerns about the rising US current account balance of payments deficit and the sustainability of the large flows of international capital needed to finance it.

Its decline over the past couple of trading sessions has also been attributed to weekend comments from influential Federal Reserve Board governor, Mr Ben Bernanke, who said the US central bank was justified in keeping interest rates low despite the recovery in the US economy.

A series of sharp spikes higher in the dollar against the Japanese currency convinced some dealers that Japan's authorities were buying the greenback versus the yen in the latest round of official intervention aimed at protecting domestic export competitiveness.

During Asian trade, the US currency spiked up to 106.40 in two quick jumps from session lows just above 106.00, sparking talk that the Bank of Japan was buying dollars and selling yen.

There was no official confirmation of any intervention.

On Monday, the dollar fell to a three-year low just above 106.00, after breaking through support around 106.60/70 which had underpinned it for the past month.

Sterling also clocked a fresh 11-year high against the embattled greenback, peaking at $1.8155.

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

Some analysts believe that dollar weakness is set to continue.

"The prospect of sustained low interest rates in the US could trigger a fresh wave of investment outflows from dollar denominated securities to higher-yielding currencies, precisely at the time when the US is in desperate need of foreign capital inflows to prevent its current account deficit from growing further," according to Mr Niall Dunne of Ulster Bank.

He pointed out that in trade-weighted terms the dollar was still stronger at present levels, than it was on average throughout the 1990s, forecasting that the euro would rise to $1.30 in the short term, with $1.35 on the horizon later in the year.

However, some other forecasters believe the outperformance of the US economy will lend support to the currency as the year goes on.