Tuesday saw the euro drop to a six-week low against the dollar in the face of concerns that European banks may be affected by fallout from the problems facing the US subprime mortgage market.

By the close of New York trading, the euro had fallen to 1.3577, a drop of 0.2 per cent which was echoed in a 0.4 per cent slide against the yen which took the euro to 160.22.

In contrast to the euro's ill fortune, the US dollar is experiencing a run of good luck that will be a welcome change to dollar traders troubled by recent poor performance.

Trade data and government figures released over the last few weeks have shown that strong exports have narrowed the trade deficit.

"We have a change in perception about Europe, with investors now realising the region is not immune to the credit crunch coming from the US, and that is putting a lot of pressure on the euro," Matthew Strauss, senior currency strategist at RBC Capital in Toronto, told Reuters.

He added that the US markets "seem to be stabilizing" and said that the export data "gives the dollar a bit of support".

Inflation is still a key concern of the Federal Reserve however, and many analysts are predicting that a change in the US base rate will be made in the coming months in order to address the problem.