Dollar falls against euro on ECB interest rate signals

In midmorning European trading, the 15-nation currency rose to $1.5470 compared with $1.5404 in late trading Thursday night in New York.

The British pound was down slightly to $1.9532 from $1.9535 the night before in New York after the Bank of England ruled out a back-to-back decrease on its interest rate, leaving it at 5 percent.

"There's little of note on the economic calendar today but traders certainly had a lot to digest yesterday with signals from the ECB to contend with alongside a rate verdict from the BoE that had suddenly been open to debate after weeks of consensus that no change would be seen," said James Hughes of CMC Markets.

ECB president Jean-Claude Trichet signaled that no shift in the euro-zone central bank's stance was likely in the coming months because of inflationary pressure on the bloc of 317 million that accounts for nearly 22 percent of world gross domestic product.

"We believe the current monetary policy stance will contribute" to achieving its goals, he said of the bank, which kept its rate at 4 percent.

Though lower interest rates can spur a nation's economy, they can weigh on its currency as traders transfer funds to countries where they can earn higher returns. Lower rates can also spur inflation — a key concern of ECB officials.

Hughes said that Trichet's remarks about inflation helped push the euro higher against the dollar but not enough to push it back above $1.55 "for the time being as support continues to build that the Fed may be approaching the end of its more accommodative monetary policy."

The U.S. Federal Reserve Bank has lowered its rates seven times in seven months to 2 percent, but is likely to pause for the time being.

In other trading, the dollar bought 102.91 Japanese yen, down from 104.17 yen in New York the night before.

Photo: AP