Euro dips in London

The euro edged lower against the dollar on Thursday after the European Central Bank left interest rates on hold, as investors waited to see if the central bank's chief would maintain his hawkish tone.
Traders will be closely watching Jean-Claude Trichet's news conference at 1330 GMT for any signs that the ECB may soon raise rates to stamp out any possible rise in inflation.
Analysts said that the ECB's decision to leave rates steady at two percent, while expected, had planted doubts in the minds of some market players that Trichet would signal an imminent rise in rates.
"I don't think Trichet will be that hawkish as he would run the risk of boxing himself into a corner and having to raise interest rates next month," said Adrian Foster, head of currency strategy at Dresdner Kleinwort Wasserstein.
While rising interest rates expectations have helped boost the euro close to a lifetime high versus the yen, it has struggled to gain against the dollar, which has been supported by a view that the Federal Reserve will keep raising US rates.
At 1308 GMT, the euro traded down around 0.2 percent on the day at $1.2040. That compares with this year's low of $1.1866 set in July and last year's record high of $1.3667.
Earlier, the euro hit its highest level against the yen since late December at around 141.20, before easing to 140.75 yen.
A rise above 141.61 would bring the euro to a record high against the Japanese currency, which has been suffering recently as domestic investors sent money abroad in search of higher yields.
The dollar edged higher against yen, and was trading at 116.90, near this week's two-year high just below 117 yen.
The ECB has upped its anti-inflation talk in recent weeks, triggering speculation it will lift its key rate from 2 percent in December or early in 2006 to end two-and-a-half years of steady interest rates.
"I think Trichet will stick to the same sort of hawkish rhetoric we've been seeing from the ECB of late, which is potentially consistent with a rate hike in December," said Daragh Maher, senior currency strategist at Calyon.
Many analysts expect the bank to prepare markets for an eventual rate hike, but delay a rise in order to prevent any sharp surge in the euro, which could damage export competitiveness and hurt Europe's fragile economic recovery.
"The ECB has to be cautious since risks probably outweigh benefits. So I expect hawkish talk but cautious action," said Lena Komileva, G7 market economist at Tullet Liberty in London.
The low-yielding yen has been one of the biggest victims of the focus on interest rate differentials because Japanese interest rates are virtually zero.
Later on Thursday focus will shift again to the outlook for US interest rates when Federal Reserve Chairman Alan Greenspan testifies on the economic outlook before the Joint Economic Committee in Congress.
His comments, due to start at 1500 GMT, are likely to reinforce expectations for further US rate increases and that could provide the dollar with some support, analysts said.
"The market is expecting a fairly upbeat assessment by Greenspan. This is one reason why the euro is not trading significantly higher against the dollar," said Royal Bank of Canada currency strategist Greg Gibbs in Sydney.
The Fed on Tuesday raised rates for the 12th consecutive time to 4 percent and gave no indication of pausing its inflation-curbing campaign.