European concerns about the impact of a falling dollar came into focus yesterday as the European Central Bank (ECB) issued its strongest warning yet about "brutal" exchange rate movements.

As the dollar hit a 26-year low against sterling and neared a record low against the euro, Jean-Claude Trichet, the ECB president, said recent exchange rate moves had been "undoubtedly sharp and abrupt", adding that brutal moves were never welcome.

At the same time, Ben Bernanke, chairman of the US Federal Reserve, said the falling dollar and soaring oil prices posed risks to US inflation.

Mr Trichet's comments echoed language he used when the euro was strengthening rapidly at the end of 2004, and suggest the ECB believes exchange rates are constraining its room for manoeuvre in setting interest rates.

As expected, the ECB held rates at 4 per cent yesterday.

The Bank of England also left its benchmark rate on hold at 5.75 per cent.

The ECB almost certainly believes that more overt currency market intervention requires agreement with other central banks.

However, in spite of concerns that the weaker dollar will increase the risk of inflation, the US Fed has shown no interest in currency intervention.

The ECB also said it would again inject €60 billion in two separate operations to ease tensions in the three-month money market - an acknowledgment that market turmoil is not over.

Meanwhile, Mr Bernanke told the US Congress that the weak US currency and the higher price of energy would increase headline inflation in the short term and "had the potential to boost inflation in the longer run".