The euro has weakened slightly against the dollar again after reports that the US may not be slowing as rapidly as many had predicted. However, it climbed strongly against sterling.

US retail sales in December were stronger than expected, as were core producer prices, suggesting that US interest rates may not fall as rapidly as many had predicted.

Many analysts now expect a quarter of a percentage point interest rate cut at the US Federal Reserve's next meeting on January 31st. Prior to the release of the data, many had been opting for another half point cut.

The euro gained almost three-quarters of a penny against sterling, closing at 64.24p from 63.53 a day earlier. As a result the pound jumped to 81.56p against sterling from 80.66p on Thursday. Against the dollar the euro closed at $0.9484 from $0.9510 on Thursday.

The dollar's gains came after the US government said retail sales rose 0.1 per cent in December, rather than the 0.5 per cent drop predicted. At the same time, core producer prices, excluding food and energy costs, rose 0.3 per cent, compared with projections of a 0.1 per cent rise. Overall producer prices were unchanged last month, compared with forecasts of a 0.1 per cent increase. Reports that the French economy slowed by more than previously reported in the third quarter of last year also undermined the euro. GDP growth in France was revised to 0.6 per cent, from 0.7 per cent in a previous estimate.

Dr Dan McLaughlin, chief economist at ABN Amro said the better than expected data raise the question of whether the Fed had negative news on the banking system, which is not yet public knowledge and which encouraged chairman Mr Alan Greenspan to implement the unexpected interest rate cut.

The president's annual economic report was also fairly positive on the economy. The US economy will continue its record expansion this year, although with slower growth, and avoid falling into recession, the report stated.