US Federal Reserve chairman Mr Alan Greenspan said last night the rise in layoffs associated with the US economic slowdown had not yet resulted in "any real serious deterioration" in consumer spending.

Speaking after testifying before the Senate banking committee, he said "we have not yet seen any real serious deterioration in the actions that people take" despite declining consumer confidence surveys.

He told the committee US inflation remained muted despite rising labour and energy costs, but warned it needed close monitoring. His comments came as the euro briefly fell below $0.85 yesterday on worries about the German economy, the largest in the EU. German Finance Minister Mr Hans Eichel warned that the German economy was deteriorating at a time when accelerating inflation was making it hard for the European Central Bank to lower borrowing costs.

The euro is suffering as markets presume the soft US economy will still grow faster in the second half of the year.

The euro closed at $0.8507 from $0.8570.