The dollar rebounded yesterday from the lows it reached last week and hit its firmest level in nearly a week as investors scrutinised comments from European officials about the possibility of rates rises and looked ahead to today's US Federal Reserve meeting.

Comments over the weekend by Mr Francis Mer, France's finance minister, that he and his colleagues had discussed a rate increase at their last meeting with the European Central Bank (ECB) were dismissed by Mr Jean-Claude Trichet, president of the ECB.

The comments shed little new light on the issue of a rate increase and the market maintained its view that, for now, the ECB was not willing to turn its words into actions.

However, with the euro pushing towards its recent record high at the end of last week, profit-taking was on the cards yesterday as the focus moved back across the Atlantic.

The Federal Reserve's open market committee meeting, which starts today, is not expected to lead to any rates cuts but the market will read the accompanying statement closely for clues about when a rise can be expected. The decision is due tomorrow.

"The only possible change in the statement could be a more positive assessment of economic growth, courtesy of improving manufacturing activity, less erosion in labour markets and the run up in capital and equity markets," according to Mr Ashraf Laidi, a currency analyst at MG Financial in New York.

On Friday, economic growth figures for the fourth quarter are expected to show that the United States is still outpacing its main trading partners.

The dollar closed at $1.2553 against the euro in European trade yesterday.

Late last night, it slipped back and was trading at $1.2475 in New York.

Many analysts said the dollar resurgence was likely to be short-lived as the underlying fundamentals - the US budget and current account deficits and the absence of a reaction from the ECB - were not expected to change soon.

"The euro's rise may not be a one-way street but, for now, any obstacles or delays are likely to prove only temporary," according to Mr Daragh Maher of ING Financial Markets.

The next big event is the Group of Seven meeting on February 6th and 7th. At the last meeting in September, the group's call for more flexibility in foreign exchange markets kickstarted a sharp fall in the dollar.