European Central Bank president Jean Claude Trichet will signal a quarter point rate rise next June when the ECB Governing Council meets in Dublin Castle later today.

A leading analyst predicted that a further such rise is likely before the end of the year, but added that rates were unlikely to rise thereafter. Irish Intercontinental Bank economist Austin Hughes said recent macroeconomic forecasts supported expectations of a rate rise next month.

On Monday, the European Commission raised its growth forecast for the euro zone this year to 2.6 per cent from 2.4 per cent, confirming fears that inflationary pressure is building in the region.

But the forecasts also suggest that growth will peak this year, before slowing to 2.5 per cent in 2008. Mr Hughes said this made further increases less likely.

"Providing that economic growth remains robust and the euro doesn't rise sharply, another 25 basis point increase might fall due before end year. However, current market expectations for an altogether more aggressive pace of tightening appear excessive," he said.

In the US, the Federal Reserve left a key interest rate unchanged yesterday as growth in the US economy appeared to slow enough to tame inflation.

The so-called Fed funds rate - the interest that the Fed charges other banks - was left at 5.25 per cent, where it has been since last August. The euro weakened to $1.353 against the dollar following the news.

"The dollar edged up against the euro because the Fed didn't indicate it is ready to cut rates any time soon," said David Watt, foreign exchange strategist at RBC Capital in Toronto.