Dollar higher against the euro

Fri Jun 20, 2008 6:18 AM EDT

business, federal-reserve, dollar, european-central-bank

FRANKFURT — The dollar rose slightly against the euro Thursday, picking up some ground after the U.S. Federal Reserve said it would leave interest rates unchanged for the time being and the European Central Bank again hinted that a rate increase is possible as early as its next meeting.

The 15-nation euro bought $1.5646 in morning European trading, down from $1.5667 in late New York trading Wednesday. The British pound fell slightly to $1.9720 from $1.9727 on Wednesday, while the dollar edged up to buy 108.09 Japanese yen from 107.93 yen the night before.

The Fed's decision to keep the federal funds rate unchanged at 2 percent Wednesday was widely expected by financial markets. It marked the first time in 10 months that the central bank has failed to reduce interest rates at one of its regular meetings.

Private analysts said the Fed may delay a rate hike until December.

Higher interest rates, used to combat inflation, can strengthen a currency by giving investors higher returns on investments. Lower interest rates can weigh on a currency.

At the European Parliament's economic and monetary affairs committee, ECB President Jean-Claude Trichet said Wednesday that "we could decide to move our rates by a small amount in our next meeting in order to secure the solid anchoring of price expectations."

He stressed that he would not "precommit" to rate hikes then or further in the future. That underlined market expectations that the ECB is likely to raise rates on July 3 amid high euro-zone inflation but leave them unchanged after that.

The bank has left its key interest rate unchanged at 4 percent since June 2007.