Shoppers may have been rushing to New York over the holiday period to make the most of their two dollar pounds, but those hitting the stores in Paris have been faced with an altogether different scenario.

While all eyes have been on the soaring strength of sterling against the dollar, the pound has been quietly losing ground against the euro.

Recently, the pound hit a four-and-a-half low against the euro, slumping to 72.40p. The pound fell more than seven per cent against the euro in 2007, making a shopping trip along the Champs-Elysees a potentially far more expensive affair for Britons. Indeed it closed 2007 at 73.51p.

It seems the recent quarter point interest rate cut from the Bank of England has put the currency on the back foot.

The Bank's governor Mervyn King recently raised concerns over the pound's downhill slide in a meeting with MPs at a Treasury Select Committee hearing.

He told the committee that the days of stability for sterling seem to be numbered, in the short term at least. "Sterling has been far and away the most stable currency in recent years, but we are now starting to weaken and it's impossible to know where that will go," he said.

There have been rumblings of concern in some quarters that the weakness against the euro is the beginning of a crisis for the pound. Economists are not so sure and say its dip against the euro comes as no surprise, given the economic dynamics in the UK and Europe, but also the sheer strength of the eurozone currency.

Just as the dollar has slumped against the pound, it has also been hurtling towards record lows versus the euro, with fears over the US economy seeing the European currency become ever more attractive.

It was a sign of the times when supermodel Gisele Bundchen recently turned her back on the dollar and demanded to be paid in euros. The dollar has lost it lustre amid interest rate cuts, with investors looking to buy other currencies that will give a higher rate of return.

The UK and US are now in a cycle of rate reductions, with America trimming rates for the third time since September and last month's decrease from the Bank of England widely expected to be the first in a series of cuts. However in the eurozone, policymakers are indicating that rates may be on the rise.

It is understood that the European Central Bank is not convinced that rates have risen enough to curb inflation, which has lifted to a six-year high of three per cent, presenting the rate setters with a major headache. The central bank's president Jean-Claude Trichet recently revealed that the last rate decision was a closer call than expected with a number of members voting for a hike - an unexpected result in light of the turmoil seen amid the current credit crisis.

For yield hunters, the euro is an attractive proposition right now. Gone are the days when the single currency lacked credibility among foreign exchange traders, it would seem. Gary Thomson, head of sales trading at CMC Markets, said: "It's a popular currency and is being taken a lot more seriously these days."

The prospect of a weaker overall economy in the UK is also impacting the pound, with mounting signs that the economy is facing stiff headwinds putting the currency under pressure. Mr Thomson believes that the pound could even breach the 75p level. "There's talk in the market that the euro may be 'range-bound' against the pound in the short term, but looking three or four weeks ahead and there will be direction and that will be sterling weakening further," he said.

This may be bad news for British tourists, especially given that by far the most popular currency requests are for the euro, according to Travelex.

But the pound's weakness against the euro is causing cheer in the export sector, with eurozone exporters reaping the benefits of higher demand from its European counterparts. Much of the robust manufacturing data seen in recent weeks, which has flown in the face of wider woes amid the credit crunch, is thought to be largely down to the boost seen in the sector from the weak pound against the euro.

Just before Christmas, figures from the CBI revealed that export order books saw their first positive balance - at two per cent - since February.

Today's Birmingham Chamber of Commerce and Industry survey also suggests good business is being done with Europe.

Demand from the eurozone has been helping offset weaker trade in the UK, according to the CBI. "Even as the domestic market slows, firms are enjoying a period of relatively strong demand from overseas as the pound has been falling against the euro and stimulating trade with the eurozone."

In fact, the pound's slide against the euro is more significant to the UK in economic terms than its strength versus the dollar, say economists.

Philip Shaw, chief economist at Investec, said: "With around 55 per cent of UK exports going out to the euro area, sterling's value against the euro is much more important to the economy as a whole. Exports to the US account for only around 15 per cent or so of UK exports."

There are double benefits for those British firms that import into the UK from the US or dollar-linked countries he adds. "They can pull in cheaper imports in sterling terms and keep their prices the same for exporting in sterling, which will cost less in euros for buyers, making these firms more competitive and increasing their export volumes."

Clothing and footwear makers in particular may have been able to take advantage of this double currency boost, given that many import from China, whose currency is linked to the US dollar.

EEF, the manufacturers' trade body, said that big eurozone exporters such as those in the machine tools and motor vehicle industry, have also been given a lift from the euro's strength.

But this welcome leg-up for manufacturers may not last too long, judging by economist forecasts. Mr Shaw said he was "not convinced" that the ECB will continue to see inflation as its main concern into next year and may start to cut rates, which will see the pound regain some of its poise.

For now however, manufacturers are using the situation to their full advantage, even if those setting their sights on a skiing trip on the Austrian slopes may find it more pricey this winter.