Euro almost hits record low

LONDON -- The European currency fell to near record lows again on Wednesday after signs the economic recovery in Europe may be stalling.

New pessimistic growth forecasts for Germany, Europe's largest economy, added pressure to the euro as it fell to a three-month low against the dollar.

The euro was within a cent of its record trough set in May.

The European Central Bank (ECB) now faces a conundrum over whether to raise official interest rates at its next council meeting on August 31 despite the latest indications of a slowdown.

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It is a scenario in contrast to the U.S. where the Federal Reserve kept interest rates steady at its policy meeting on Tuesday as inflation remained contained despite robust economic growth.

"The ECB is very much in a bind and that position contrasts markedly with the position that the (U.S.) Fed have got themselves in," Neil MacKinnon, senior currency strategist at Merrill Lynch in London, said.

"The euro is still very much on the ropes and downward pressure is likely to continue and there is no relief, really."

The euro fell as low as $0.8908, some eight percent below $0.97 peaks hit just two months ago and within reach of record lows of around $0.8845 set in May.

The euro also fell to three-month lows against a broadly buoyant yen and threatened to retest record lows below 95 yen hit in May.

The latest euro sell off came after the release of a west German business climate index by the Ifo institute which showed a surprise fall in July, casting doubts about the nation's economic recovery.

The latest assessment for economic growth by the German Institute for Economic Research showed Germany growing at 2.9 percent over the year to the second quarter.

The German government's forecast is for economic growth at 2.75 percent for the following year based on slackening domestic demand.

The latest figures have put the ECB in an awkward position, given recent euro zone inflation figures have been at or above the ceiling of its target.

Germany's Bundesbank council member Hans Reckers said price developments were worrying.

"A further interest rate move by the ECB is necessary," he said, adding that such a move would not hamper growth while boosting the ECB's credibility and the confidence in the euro.

Reckers declined to comment on the likely size or timing of the next rate move.

"The problem is that higher interest rates are no guarantee for a stronger currency," MacKinnon said.

Reuters contributed to this report.

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