LONDON, Nov 7: The dollar tumbled on Wednesday to fresh lows against the euro, with already cautious sentiment hit by reports China might diversify its massive forex reserves away from the US unit, dealers said.

They said reports, however unclear, that China, with its $1.4 trillion in foreign exchange reserves, could be ready to cut its dollar holdings only added to the litany of negative news on the beleaguered US currency.

The fact the US economy is expected to slow leads the market to believe the US Federal Reserve will have to cut interest rates further, which ensures a weakening bias for the dollar against the euro.

The euro hit an all-time high of $1.4731 in midday European trade before falling back to $1.4665, still well up from $1.4555 in New York late on Tuesday.

Against the British pound, the dollar hit new 26-year lows at $2.10, the highest level since 1981.

The price of gold also jumped higher in early trade, hitting $845 an ounce to be within touching distance of its all-time peak of $850 set in January 1980.

The dollar was hurt in early trade by comments made by the vice chairman of China’s national parliament, analysts said.

Cheng Siwei reportedly said at a conference in China that his country should adjust the structure of its foreign exchange reserves, the world’s largest, suggesting that strong currencies ought to be given greater weight.

“This comment, although more confusing than anything else and only presented by a third-tier Chinese official, caused the dollar to sell-off,” said analysts at BNP Paribas.

The US currency, more generally weighed down by fears of a US recession and further rate easing, was weak across the board, hitting an all-time low against the Australian dollar and a multi-decade trough against the Canadian dollar.

Speculation is mounting that the Fed may cut interest rates again when it next meets in early December.

Dealers said there was also talk in the market that the European Central Bank may raise interest rates on Thursday to keep a lid on inflation, even though most analysts expect it to leave monetary policy unchanged for now.

“There may be a chance that the ECB will increase the interest rate Thursday because of rising inflation,” said Daniel Chan, senior investment strategist at DBS Bank.—AFP