Dollar moves little against euro

NEW YORK: The dollar showed scant movement against the euro late on Thursday after the head of the European Central Bank warned again of potential inflation risks, diminishing hopes of eurozone interest rate cuts.

Traders said they were not surprised that the ECB had opted to leave interest rates on hold at a policy meeting Thursday, but said remarks by bank president Jean-Claude Trichet suggest eurozone borrowing costs will remain unchanged for some time to come.

The euro was changing hands at 1.5393 dollars at 2100 GMT, little changed from 1.5395 in New York late on Wednesday. The dollar meanwhile declined against the Japanese currency to 103.68 yen compared with 104.66 yen a day earlier.

Trichet reiterated again that inflation was a longer term problem for the 15-nation eurozone and said people should get used to higher energy costs, which have been stoked by rocketing crude oil prices.

"As we have said on previous occasions, inflation rates are expected to remain high for a rather protracted period of time," Trichet said after ECB governors left the bank's benchmark lending rate unchanged at 4.0 percent.

Asked if there were ways to offset the impact of soaring energy and food costs, which some economists say represent a transfer of wealth back to countries supplying raw materials for the rest of the planet, he said no.

Michael Woolfolk, a senior currency strategist at Bank of New York Mellon, said Trichet kept to his hawkish stance despite softening eurozone growth and inflation indicators.

"Players were disappointed that the ECB did not clearly acknowledge the improvement in inflation data and a willingness to cut rates," said Woolfolk.

The ECB's determination to keep rates steady has bolstered the euro against the dollar, especially as the US Federal Reserve has adopted an aggressive rate cutting campaign in recent months.

The pound remained in focus after the Bank of England also decided to keep interest rates unchanged. Analysts said, however, that the BoE will likely have to cut British rates in June due to slowing economic momentum.

The US Federal Reserve has slashed its key base rate to 2.0 percent in a bid to boost the flagging US economy which has been slowed by a persistent housing market downturn and related credit crunch.

Recent US economic news has suggested, however, that the world's largest economy is proving resilient despite the lingering problems of the subprime home loan crisis.

In late New York trade, the dollar stood at 1.0512 Swiss francs, down from 1.0546 on Wednesday. The pound was priced at 1.9543 dollars, up from 1.9532 a day earlier.