The euro has failed to build on gains made after the ECB president, Mr Duisenberg hinted at higher interest rates. It may now face further selling pressure next week if economic data suggests that the major European economies remain weak.

Speaking yesterday, the head of Europe's biggest bank admitted that the euro's slide towards parity with the dollar was "embarrassing" and was damaging the reputation of the new currency.

The euro held above $1.02 in late trading in Europe yesterday but was quoted at below $1.02 in New York later. Analysts now disagree on whether it is set to fall back towards parity with the dollar in the short term.

Mr Rolf Breuer, the head of Deutsche Bank, said the currency's fall over recent months was "an embarrassing factor for a young currency". The euro's slide - by 12 per cent since its launch at the beginning of the year - had given "a reason for concern" on grounds of risk to its reputation rather than any economic impact it might have, he said.

Mr Breuer - speaking at the opening of his bank's new trading floor in London - supported the view that the European economy was strong enough to absorb an interest rate rise.

But there were signs in the market that the immediate impact of Mr Duisenberg's interest rates comments have been limited. He said that a bias to tightening monetary policy - or increasing interest rates - was gradually creeping into the bank's thinking.

In the immediate wake of his comments, the euro bounced to $1.0250, but it failed to consolidate much of these gains and was struggling yesterday to stay above $1.02. Also, European government bond markets, which initially lost ground in the wake of his comments, had regained their poise by yesterday evening, indicating that the president's comments have done little to change market expectations on interest rate trends.

Many analysts believe that the euro will again come under pressure in the weeks ahead. The "slight" change in interest rate sentiment after Mr Duisenberg's comments may support the currency briefly, commented Mr Jim Power, chief economist at Bank of Ireland Treasury, but he said he still expects the euro to fall through parity with the dollar and possibly go as low as 98 cents in value.

The trend of the euro in the next few days will depend on the tone of the next German Ifo institute report on the business climate in Germany and on a speech by chairman of the US Federal Reserve, Alan Greenspan, on the US economy, on Thursday.

Yesterday, US industrial production in June showed a fairly weak increase of 0.2 per cent.

The euro firmed slightly against the US dollar after the figures, but did not rally strongly. By last night in New York it had dipped just below the $1.02 level again.

On Thursday, figures had shown that US inflation was unchanged in June after showing no change in May and the news - together with the industrial production figures - put to rest worries that the Federal Reserve might be ready to pull the interest rate trigger again to head off inflation.