The dollar has leapt to its highest levels against the yen in seven months and also strengthened against the euro following the change in attitude of the US Federal Reserve towards interest rates.

The change in the Fed's bias to "tightening" interest rates strengthened the dollar slightly on financial markets. However, the Euro did not weaken as much as the yen following strong support for it by the Bank of France head Mr Jean-Claude Trichet.

He said the Euro had the potential to rise and the fact that Europe had low, long-term interest rates showed that financial markets shared this view.

He also said the European Central Bank (ECB) had created "the best monetary environment " for growth and that financial markets were not expecting further interest rate easing.

"Any expectation for a further decrease would not be appropriate," he said.

The Euro closed at $1.0660 from $1.0677 a day earlier and was flat at 65.86p against sterling. As a result, the pound was at 83.61p against sterling.

Much of the dollar's performance came from higher US stock and bond prices, the prospect of higher US interest rates and weak Japanese economic fundamentals, dealers said.

They said sterling turned slightly lower against the dollar and the Euro, reflecting concerns that the Bank of England may intervene to weaken the currency following remarks in the minutes of the bank's monetary policy committee's May 6th meeting.

Mr Colin Hunt, chief economist at Goodbody Stockbrokers, said UK employment data brought the committee's thinking on the labour market into question. Unemployment tumbled to a 19-year low of 4.5 per cent in April while average earnings growth accelerated again, raising fears of a tightening labour market.

But minutes from the latest rate-setting meeting of the Bank of England showed this month's decision to leave interest rates on hold was finely balanced. Almost half the monetary policy committee voted for another cut.

The market had been expecting a small increase in unemployment but instead the number of unemployed fell by 17,400. "This reduces the scope for further rate cuts," Mr Hunt said.

According to Mr Hunt, the Euro is likely to remain around 66p against sterling for the next few months, leaving the pound to trade around 83p sterling.

He added that sterling may remain strong. "We seem to have an acceptance that the 1993 to 1995 level of sterling at around DM2.20 to DM2.30 is the natural order and the current strength is an aberration. But it could be that the opposite is true and that sterling at DM2.80 or DM2.90 is more the natural order."