updated 7/11/2007 8:30:26 AM ET 2007-07-11T12:30:26

The U.S. dollar continued its descent into record low territory against the euro Wednesday amid fears about the health of the U.S. economy.

The 13-nation currency traded as high as $1.3784 overnight before settling back to $1.3767 by afternoon in Europe. That compared with the $1.3729 it bought in New York late Tuesday.

The British pound hit a new 26-year high against the dollar, rising to $2.0322 — its highest level since June 1981 — from the $2.0267 it bought late Tuesday.

“Currency markets have arguably been left focusing on just one point at the moment and that’s concern over the possible collapse of the U.S. subprime lending market,” said David Jones, chief market analyst at CMC Markets in London.

“The result has been to put the dollar under some sustained pressure through the overnight session.”

The subprime market refers to loans, such as mortgages, given to borrowers with spotty credit histories that tend to have higher interest rates. Subprime borrowers have missed a lot more payments on loans amid higher interest rates and a slowdown in the U.S. economy.

A higher euro makes goods from the 13-nation currency zone more expensive for customers abroad and cuts into manufacturers’ profits if they try to keep the U.S. dollar price of products constant.

However, European Central Bank executive board member Juergen Stark downplayed those concerns earlier this week. He said more than 50 percent of euro-zone countries’ exports go to other euro-zone members, which makes them less vulnerable to currency fluctuations.

On Tuesday night, he noted that “the improvements in economic fundamentals are being reflected in exchange rates.”

Along with the rise in the pound, the stronger euro also makes visits to much of Europe more expensive for travelers from elsewhere and makes shopping trips to the U.S. more appealing to Europeans.

“I said to my friend ’Thank goodness we bought all our gifts before we got to Brussels last week,”’ Susan Chorney, a middle school teacher from Greenwich, Connecticut, said in Berlin.

“I know we’ll slow down on buying things to take home. We’re more thoughtful about spending small dollars right now.”

The euro started surging against the dollar on Tuesday, breaking through the $1.37 mark for the first time since it started trading in 1999, as concerns about the U.S. economy were fueled by discouraging growth forecasts from key retailers and homebuilders.

The dollar got no boost from a speech by U.S. Federal Reserve Chairman Ben Bernanke that offered little insight into the central bank’s next move and focused instead on how the bank makes its inflation-fighting decisions.

The Fed has left its benchmark rate unchanged at 5.25 percent for a year following two years of steady increases.

That contrasts with the ECB, which has raised rates steadily and is expected to do so again to 4.25 percent in September; and the Bank of England, which last week increased its benchmark rate to 5.75 percent, a six-year high.

Higher interest rates, a weapon against inflation, can bolster a currency by giving better returns on fixed-income investments.

The dollar fell to 121.48 yen from 122.03 yen after the Japanese government said the country’s current account surplus expanded for the fifth straight month in May, auguring well for economic growth in the second quarter.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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