Hedge funds and forex dealers are betting record amounts against the dollar, reflecting a growing belief that the US currency has lost its haven appeal and that eurozone interest rates will soon rise.

As the crisis in the Middle East has worsened, the latest exchange data show that traders are selling "short" the currency. The big US fiscaldeficit and concerns about the effect of rising oil prices have been blamed by some for the dollar's slide.

Figures from the Chicago Mercantile Exchange, which are often used as a proxy for hedge fund activity, showed that short dollar positions surged from 200,564 contracts in the week ending February 22 to 281,088 on March 1.

This meant that the value of bets against the dollar on the CME rose $11.5bn in the week to March 1 to $39bn, $3bn more than the previous record of $36bn in 2007.

In contrast, speculators have added to their euro holdings amid expectations that the European Central Bank will soon raise interest rates to head off rising inflation.

Jean-Claude Trichet, ECB president, said last week that "strong vigilance" was warranted, a phrase used throughout the bank's 2005-08 rate- tightening cycle. That strengthened the market view that the ECB could raise rates at its April meeting and the euro last week rose to a four-month high of $1.3997 against the dollar, taking its gains from a 16-week low of $1.2871 in January to nearly 9 per cent.

"Dollar bears have become a marauding hoard," said David Watt, analyst at RBC Capital Markets. Given the continued losses for the dollar this month, he said it was likely that investors had since added to their bets against the US currency.

"We may be seeing a turn in the longer-term outlook for the dollar - for the worse," said Kit Juckes, head of FX strategy at Société Générale. He said the US Federal Reserve was likely to react more dovishly to a supply-side inflationary shock caused by rising oil prices than other central banks.

The figures showed that speculators on the CME had raised the value of their bets that the euro would rise against the dollar to $8.8bn, the largest since January 2008, in the week to March 1.