Euro falls amid rate rise doubts

Jean-Claude Trichet, the president of the European Central Bank, gave the euro a fresh downward shove on the foreign exchanges yesterday when he surprised the financial markets by appearing lukewarm about the need for a series of increases in interest rates in the eurozone.

The dollar, which was already trading close to its highest levels in two years against the single currency, rose by more than a cent after Mr Trichet said that a tightening of policy in the 12-nation eurozone - expected either next month or early in the new year - might not necessarily be the first of many.

Hawkish comments by the ECB president last week had halted the euro's slide against the dollar, with markets betting on up to six quarter-point rises between now and the middle of 2006, taking eurozone rates from 2% to 3.5%.

In testimony to the European parliamentary committee on economic and monetary affairs yesterday, however, Mr Trichet said: "I don't see at all, ex ante, the start of a series of augmentation of interest rates."

Higher rates were seen as underpinning the single currency by providing a higher yield for investors. Some analysts said Mr Trichet was simply showing a central banker's caution by refusing to look more than one decision ahead. But the euro fell to $1.172 from $1.183 shortly before the remark - down about 0.4% from Friday.