The euro yesterday fell 1.7 per cent against the dollar to 0.9139 amid concern that French and German inflation, which was accelerating, would deter the European Central Bank (ECB) from cutting interest rates to stimulate growth. Inflation in both Germany and France rose in February according to the latest data. Rising prices means the ECB will not cut rates from 4.75 per cent before the end of June, even as economic growth slows, analysts said.

"Euro weakness is based on the fear that the ECB will wake up to the need to cut rates too late," said Mr Paul Chertkow, head of global currency research at Bank of Tokyo-Mitsubishi. The ECB may "sit on its hands and growth will slow too much in the euro zone" while it rebounds in the US. French February consumer prices rose 0.3 per cent, the first increase in three months. Prices in Germany increased 0.6 per cent in February after rising 0.5 per cent in January.

According to Mr Jose Alzola of Solomen Smith Barney, eurozone inflation for February is likely to edge up probably to 2.6 per cent from 2.4 per cent in January.

"Barring major oil price changes, headline inflation will not fall clearly below 2 per cent before June. The combination of above 2 per cent headline inflation and signs that economic growth is not slowing sharply will provide more ammunition for the ECB's "wait-and-see" attitude".

Bundesbank President Mr Ernst Welteke reiterated this view. He said that although inflation risks were becoming more balanced, past oil price rises continued to feed through and there was still uncertainty concerning the euro's exchange rate.