Is the dollar keep flagging vs. Euro?

The dollar hit a record low against the euro for the third straight session on Monday as fear that a deepening housing slump could rein in economic growth and trigger more cuts in U.S. interest rates.

Trade was light as attention shifted to housing and consumer confidence data due on Tuesday. Investors are worried that weak economic reports will push the Federal Reserve to follow last week's half-percentage-point rate cut with more policy easing, further eroding the dollar's yield advantage over other currencies, particularly the euro.

After last week's cut, U.S. benchmark interest rates stand at 4.75 percent, compared with 4 percent in the euro zone. "Rate differentials will continue to be the main driver, and as long as we see U.S. data on the weak side, markets will expect further Fed easing, putting more pressure on the dollar to weaken," said Paresh Upadhyaya, who helps manage about $29 billion in currency assets at Putnam Investments in Boston.

Several Wall Street firms have downgraded their outlook on U.S. gross domestic product over the next several quarters.

The dollar traded at 114.92 yen, about 0.4 percent below its level late on Friday as investors remained wary of piling back into carry trades, which involve using cheaply borrowed yen to buy higher-yielding currencies and assets.

Analysts say the recent sharp declines in the dollar may provide some investors a short-term buying opportunity. "The U.S. dollar feels quite weak, but I wouldn't be surprised to see some short-term profit-taking, people buying some dollars and selling some euro. But I do not expect it (the euro) to move too much lower than here," said Firas Askari, head currency trader at BMO Capital Markets in Toronto.

Longer term, though, the focus will remain on interest rates and the dollar's dwindling yield advantage. Interest rate futures are pricing in a roughly 66 percent chance of a 25-basis-point Fed rate cut in October, down from 72 percent at Friday's close. At least one more quarter-point cut has been factored in by year-end on top of any move at the Fed's next meeting in October. "It's all about interest rates," Askari said. "Once the Fed starts an easing cycle, I don't believe it's ever gone one move and out. I am confident we will have more easing, at least 25 (basis points), probably another following early next year."

Investors overlooked criticism of the European Central Bank from a French presidential aide who said euro strength was eroding European competitiveness and business productivity. ECB President Jean-Claude Trichet also brushed off the remarks, saying the central bank's main task was to ensure price stability.