New US treasury secretary Henry Paulson has come out in his debut policy speech to back a strong dollar, however the markets saw the currency fall.

The dollar fell against the pound and the yen to one dollar to 114.37 yen and to £0.53295. One dollar stood at €0.77975.

Mr Paulson said at Columbia University: "I believe that a strong dollar is in our nation's interest and that currency values should be determined in open and competitive markets in response to underlying economic fundamentals."

Speculation on whether US interest rates will continue to rise and uncertainty over the European Central Bank's rate decision this week also hindered the dollar along with manufacturing reports.

The Institute of Supply Management's measure of manufacturing performance for July is expected to be slightly lower than June and US jobless figures have grown.

Mr Paulson added that the US economy was in "transition" heading to a slower, but more sustainable, growth rate.