One side effect, however, may be to reduce pressure on the European Central Bank to raise interest rates . . . which in turn would be good news for mortgage-payers.

European Central Bank president Jean-Claude Trichet said he noted "with great interest" that US authorities consider a strong dollar in their country's interest.

"I will only say that I have noted with great interest that the US authorities, including the secretary of the Treasury, mentioned the fact that a strong dollar is in the interest of the US, " Trichet told Finnish broadcaster YLE.

The euro's surge to a record against the dollar is threatening to curb European exports, the mainstay of economic growth over the last two years. Eight ECB rate increases since late 2005 and a US housing market slump are boosting the euro's allure for investors.

The currency rose to a record $1.3844 on Friday. It fell after Trichet's comments, to $1.3812 at 6:55 pm in Frankfurt.

With the ECB preparing the ground for at least one more rate increase in coming months, the euro may appreciate further, raising concern among European exporters. Audi, Volkswagen's luxury brand, said two weeks ago it expects US earnings to fall this year because of the stronger currency. Airbus, the world's largest maker of commercial planes, said last month that every 10-cent decline in the dollar against the euro costs the company 1bn in profit a year.

Trichet said that while risks to the economic growth outlook are balanced in the short-term, "in the longer run, we have risks that are downward risks." These include a possible increase in protectionism at a global level, rising oil prices and the unwinding of global imbalances, he said.

ECB council member Nicholas Garganas said this week that the euro's gains may also hamper economic growth.

"My position is that of the governing council, that is: excess volatility and disorderly movements in exchange rates are undesirable for economic growth, " Garganas said.

ECB council member Vitor Constancio said the euro's appreciation will help to push down inflation in the 13 nations using the currency. "Of course it has an impact in reducing inflation, " said Constancio, who also heads Portugal's central bank. "It's automatic and it's something we always consider. That's one of the variables we look into."

Inflation may average about 2% this year and next, the Frankfurtbased ECB said last month. It aims to keep inflation below 2%. The euro-region economy will probably expand around 2.6% this year and about 2.3% in 2008, according to the bank's forecasts. The economy expanded 2.7% last year, the most since 2000.

Investors expect the ECB to raise borrowing costs at least once more this year, futures trading shows.

The implied rate on the threemonth Euribor futures contract for December settlement was at 4.55% on Friday.

The contracts settle to the threemonth inter-bank offered rate for the euro, which has averaged 16 basis points more than the ECB's benchmark rate since the single currency's start in 1999.