Euro rallies against dollar in European trade

LONDON (AFP) - The euro rebounded against the dollar on Friday as the market focused on the interest rate outlook for the United States and eurozone, traders said.

In European trading, the euro rose to 1.5474 dollars from 1.5393 in New York late on Thursday.

The dollar fell to 103.13 yen from 103.68.

"It's natural for the dollar to take a break" after its recent rebound, said Yosuke Hosokawa, head of foreign exchange trading at Chuo Mitsui Trust Bank.

"Although dollar positive sentiment has eased slightly, a lot of players still believe the greenback is well supported" as bad news related to the US economy appears to be abating, he said.

The dollar was supported earlier in the week by speculation that the next move in US interest rates could be a hike.

The US Federal Reserve has slashed its key rate to 2.0 percent, down sharply from 5.25 percent last September, in a bid to boost the flagging US economy which has been hit by a housing slump and related credit crunch.

Market players were also weighing the prospects for eurozone interest rates.

On Thursday, European Central Bank chief Jean-Claude Trichet warned of potential inflation risks, dampening speculation of a possible rate cut.

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

Trichet's "fixation may be on the fact that inflation is above target, but we suspect that the data on activity will continue to deteriorate, and ultimately turn intransigence into capitulation with a rate cut in September," said Calyon analyst Daragh Maher.

Inflation is being lifted largely by soaring energy prices. On Friday the price of oil reached a record high above 125 dollars a barrel.

The market was meanwhile awaiting publication later Friday of US trade data.

In London on Friday, the euro changed hands at 1.5474 dollars against 1.5393 late on Thursday, at 159.52 yen (159.62), 0.7919 pounds (0.7875) and 1.6134 Swiss francs (1.6182).

The dollar stood at 103.13 yen (103.68) and 1.0436 Swiss francs (1.0512).

The pound was at 1.9535 dollars (1.9543).

On the London Bullion Market, the price of gold fell to 887.70 dollars per ounce from 877 dollars late on Thursday.

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