LONDON, Oct 26: The dollar came under heavy pressure on Friday, hitting record lows against the euro as players bet the Federal Reserve will have no option but to cut interest rates again next week, dealers said.

They said persistent serious problems in the US housing market, reflected in the massive provisions banks have been forced to take for their sub-prime home loan exposure, has badly hit confidence in the US currency.

The fear is that there is worse to come, with the banks likely to have to set aside even more reserves -- at the cost of earnings -- to cover their losses on the mortgage business.

In late Friday trade, the euro was at $1.4390, just off a high of 1.4393 and up from 1.4388 dollars earlier in the day. The unit had been quoted at $1.4320 in late New York trade on Thursday.

The euro has now gained six per cent against the dollar since September and 14 per cent for the year to date.

As the dollar fell, gold rose, hitting $779.15 per ounce, levels last seen in January 1980.

“Most of the data that has come through this week from the US has been disappointing and has pushed the Fed funds futures market into fully discounting a 25 basis point rate cut from the Fed next week,” said Steve Barrow, currency strategist at Bear Stearns.

Figures this week have shown the US housing market to be locked into a downward spiral, with sales of new homes off 23 per cent from a year earlier and existing homes sales falling much faster than expected.

The data only bolster the case that the Federal Reserve will cut interest rates from the current 4.75 per cent in an effort to support the economy.

The Fed last month slashed rates by a hefty half-point to try to shield the world’s largest economy from the housing and credit market woes.

“With rising commodity prices and weak US indicators, the US economy’s slowdown could prompt the beginning of a slowdown in the global economy next year,” noted Saburo Matsumoto, chief foreign exchange strategist at Sumitomo Trust Bank.

“With the market anticipating that the Fed could cut rates once more by the end of the year, possibly in December, this means that the dollar will be pressured and remain on a falling trend,” he added.—AFP