LONDON, March 7: The euro and the pound were slightly firmer against the dollar on Wednesday ahead of interest rate decisions by the European Central Bank and the Bank of England.

The euro stood at $1.3148 in late European trading, from $1.3123 late in New York on Tuesday.

The dollar dipped to 116.37 yen from 116.59 yen on Tuesday, ahead of key US jobs data later this week.

The ECB is fully expected to raise its key rate by a quarter point to 3.75 per cent on Thursday and attention will focus instead on bank president Jean-Claude Trichet’s accompanying press conference for clues on the rate outlook further out.

“The statement accompanying the decision on Thursday and Mr Trichet’s comments in the press conference after will be gone through with a fine-tooth comb for any clues regarding the timing and extent of any further interest rate hikes,” said Howard Archer at Global Insight.

Many in the market expect that Trichet will drop hints that at least one further rate rise will be forthcoming in the coming months, possibly in June.

Any comments suggesting that eurozone monetary policy remains accommodative or concerns about medium-term inflationary pressures despite the recent benign eurozone inflation data will point to rates moving higher.

The pound was also firmer against the dollar ahead of the rate decision in Britain also scheduled for Thursday.

The Bank of England is broadly expected to leave its key repo rate unchanged at 5.25pc, but markets are concerned that the central bank may opt for a hike.

Last month's quarterly BoE inflation report suggested that rates would need to rise to 5.50 per cent in order to meet the central bank’s 2.0 per cent inflation target.

Furthermore, the bank has surprised the market with rate hikes twice recently, in January 2007 and August 2006.

“February’s inflation report was a clear statement of intent to raise rates again. Without an early increase, the Monetary Policy Committee's forecast shows inflation running above target at the two-year time horizon,” said Andrew Smith, KPMG chief economist.

Elsewhere, the yen weakened on profit-taking from recent sharp gains prompted by a hefty unwinding of the so-called carry trade -- where investors borrow in low-yielding currencies such as the yen in order to invest in higher-yielding assets elsewhere.“After a week of mayhem in the Japanese yen, the last few days have been quite sedate and volatility has eased back down,” said Steve Barrow at Bear Stearns.

He warned, however, that the market may not have seen the end of carry trade unwinding and resultant gains for the yen.—AFP