The euro held firm against the dollar today after rebounding from a two-month low on reduced expectations for European Central Bank rate cuts.
ECB President Jean-Claude Trichet said yesterday that inflation remained his top concern, suggesting the bank won't cut interest rates any time soon.
The euro had fallen to a two-month trough below $1.53 as some investors expected Mr Trichet to temper his tough talk on inflation and focus on signs of slowing euro zone growth.
Still, the single currency could stay under pressure versus the dollar as the market focus shifts to selling currencies with a deteriorating growth outlook, traders said.
"Trichet stuck to inflation concerns but the markets are looking ahead to worsening economic conditions in the euro zone," said Hideaki Inoue, chief manager of Mitsubishi UFJ Trust Bank. "That puts a drag on the euro's rebound, and it will test $1.52 next week when European financial institutions issue earnings reports."
A trader at a Japanese bank said similar concerns were hurting the New Zealand dollar despite its
high-yielding status.
The euro edged up to $1.5414 from late US trade yesterday as investors continued to cover short positions, traders said.
It had fallen as low as $1.5285 on trading platform EBS the previous day before the ECB kept benchmark interest rates unchanged at 4 per cent and Mr Trichet told reporters high energy and food costs meant the euro zone still faced a protracted period of high inflation.
The euro hit an all-time high against the dollar above $1.60 just two weeks ago.
Growth worries also hit the Australian dollar after the country's central bank said in its quarterly monetary policy
statement that a significant slowdown in demand would help curb inflation pressures.
Investors took the Reserve Bank of Australia's remarks as reducing the chances of a near-term interest rate rise after it kept rates unchanged earlier this week at 7.25 per cent.