The dollar continued to decline in foreign exchange markets yesterday in response to lower interest rates here, ignoring what some traders had expected would be a psychological boost from the reelection of President Reagan.

Against major European currencies, the dollar has now slipped about 8 percent to 10 percent from its peaks of the past two months. For example, in Frankfurt, the dollar yesterday closed at 2.9250 West German marks, nearly 2 1/2 pfennigs lower than Tuesday's 2.9497 marks, and well below levels close to 3.10 marks recently.

The dollar bought a shade less than 9 French francs yesterday, instead of almost 10 francs six weeks ago. The British pound, which had plunged to less than $1.20, closed at $1.27565 yesterday.

News that American banks cut their prime lending rate by another quarter point to 11 3/4 percent -- after having cut it in successive steps from 13 percent -- came too late to affect trading in most European centers. However, after markets closed in Europe, the dollar slumped as low as 2.91 German marks.

Nonetheless, American experts, while anticipating some further reductions in American interest rates, resulting in further slippage in the dollar, think it premature to call the present dip a major turning point in exchange rate markets.

"My guess is that these recent moves may be temporary, the pattern will prove to be indecisive," said C. Fred Bergsten, director of the Institute for International Economics. Financial and foreign exchange markets "will want to see what happens to the budget deficit and to the outlook for U.S. economic growth," he said.

In a telephone interview, Henry Kaufman, economist for Salomon Brothers, said that a precipitate weakness in the dollar would be likely only if the American economic expansion continued to slow down while the pace of economic activity in Europe holds steady. That would tend to narrow interest rate differentials between the United States and Europe, lowering the dollar exchange rate.

But Kaufman said he sees "a re-acceleration of the American economy no later than the first quarter of 1985, and therefore, we will be maintaining our comparative advantage over Europe." His optimism on renewed growth is based on the interest rate decline, which he expects will help revive housing; expectations of large-volume auto production in the first quarter of 1985, and signs of continued strength in plant and equipment expenditures.

With inflation rates likely to remain "moderate," and profitability from investment still attractive here, Kaufman anticipates interest rates will start rising again early next year despite current Federal Reserve policy tipped toward an easier monetary policy.

Both Bergsten and Kaufman agreed, however, that it is unlikely that the dollar would regain enough strength to push it beyond the high points of a couple of months ago.

High real interest rates in the United States have been sufficiently above interest rates elsewhere in the world to have attracted an enormous flow of investment funds that not only helped push the dollar higher but also helped finance the U.S. budget deficit.

From 1980 to the end of September 1984, the average "real" trade-weighted value of the dollar against major trading nations increased 59 percent, according to a Federal Reserve index. The extent of appreciation against some individual currencies has been even greater.

This big jump in the dollar level has, on the one hand, made it difficult for American manufacturers to compete abroad, while giving foreign producers a big edge here, thus contributing to the huge U.S. trade deficit. On the other hand, the strong dollar has helped to hold down inflation rates here by lowering the price of imported goods.

Administration economists and others have been hoping that the dollar -- which Reagan officials like to say is "strong" and which others call "overvalued" -- would come down gently, rather than sharply. The latter pattern could produce much higher inflation, while a gentle drop would not hurt prices much, but could encourage American exports and help cut the oppressively high trade deficit.

The dilemma for the Fed has been that a monetary policy designed to stimulate the domestic economy could also push the dollar way down -- creating a new inflationary force. Another international consideration for the Fed is that lower interest rates could also discourage the flow of capital here, which has been helping to finance the budget deficit.

From a European and Japanese standpoint, a slowdown in the capital being exported to the United States would also mean that more investment money is staying at home, helping to create local jobs. And dollar-denominated imports, such as oil, would cost less. But there's a trade-off: these plus-factors for foreigners from a lower dollar rate have to be measured against the economic loss they will suffer when the value of their own currencies goes up, cutting the competitive edge they now enjoy against dollar-denominated goods.