The euro has hit three-week highs against the dollar as the Swedish central bank intervened to buy the krona. The news will be welcomed by the European Central Bank (ECB), which holds its monthly meeting in Dublin next Thursday.

ECB board members have been holding a consistent line that a strong, stable euro is in the zone's best interests. However, a high inflation reading on Monday is likely to put an end to any thoughts that the ECB could announce a rate cut after its Dublin Castle meeting.

A day earlier, ECB president Mr Wim Duisenberg will join the Minister for Finance, Mr McCreevy and the Tanaiste, Ms Harney, in a euro changeover press conference.

According to Mr Oliver Mangan, economist at AIB, inflation in the euro zone could reach 3.4 per cent on Monday. "The ECB would look odd announcing a rate cut in the week that inflation topped 3 per cent."

He added that, as food prices fell back in the second half of the year, falling inflation figures could give the ECB room to cut rates. In heavy trading yesterday, the euro hit three-week highs against the dollar, adding nearly half a percentage point to its recent gains after Sweden's central bank intervened to buy the krona. The euro initially fell against the Swedish currency but the Riksbank then sold dollars for krona in larger amounts, which weakened the dollar across the board, feeding a euro rally which had been triggered on Thursday by US manufacturers' complaints about dollar strength.

The president of the US National Association of Manufacturers, Mr Jerry Jasinowski, said on Thursday the currency was "out of balance" by 25 per cent to 30 per cent and that he would keep pressing the Bush administration to relax its strong dollar policy.

Further weak data out of the US also undermined the dollar. Industrial sector manufacturing fell for the eighth month in a row.

But the economy is also weak in Europe and the euro's upside may be limited. Earlier this week, the ECB published its latest economic forecasts, which were revised down from the estimates reported in December.

Sterling also rose against the dollar as the reassessment of Britain's chances of joining the euro gained fresh ground after British Minister for Europe, Mr Peter Hain, said the debate over Britain joining the euro should be cooled, a view echoed by Foreign Secretary Mr Jack Straw.