The United States believes that a sharp slowdown in Europe this year will come to the aid of the tumbling dollar.

According to a senior US Treasury official, Washington is banking on the American economy recovering more quickly than expected and a slowdown among eurozone economies combining to help to resuscitate the greenback.

That view, in part, chimes with opinions on Wall Street, where economists are forecasting a severe slowdown in the European Union. Kevin Logan, senior economist for Dresdner Kleinwort in New York, expects economic growth in the eurozone – which hit 2.8 per cent in 2007 - to slow to 1.5 per cent this year, with “the real slowdown happening in the third quarter”.

The weakness of the dollar has helped to erode America’s trade deficit. However, at the G7 meeting last month, Henry Paulson, the US Treasury Secretary, raised the issue of the dollar’s plunge.

In a statement at that gathering G7 members said: “Since our last meeting, there have been, at times, sharp fluctuations in major currencies and we are concerned about their possible implications for economic and financial stability.”

François Fillon, the French Prime Minister, said: “We believe that the euro, globally speaking, is overvalued.”

Economists expect the European Central Bank (ECB) to begin to cut the cost of borrowing in the third quarter, lagging behind moves by the US and Britain. Interest rates in the eurozone economies are at 4 per cent.

Jean-Claude Trichet, the ECB President, has given warning about the inflationary risks of soaring food prices worldwide and has said that financial market speculators may be to blame for the rising cost of grains and dairy produce. He has said that food, energy and metals prices were having an effect worldwide.

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