The euro slipped against the dollar this afternoon after the European Central Bank gave no clear signs that it would continue raising interest rates beyond 2007.
The ECB lifted euro-zone rates to 4 per cent, but the hike had been well telegraphed and failed to boost the euro, which has been trending higher along with European interest rates over the last year.
While ECB President Jean-Claude Trichet said liquidity remains ample and inflation risks remain tilted to the upside, he added the ECB does not intend to alter its 2008 inflation forecast.
"We are getting toward the point where (interest rates) are neutral, so there's no additional impetus there for the euro to gain on the back on that," said Shaun Osborne, senior currency strategist at TD Securities in Toronto.
Euribor contracts rallied across the 2008 part of the curve after Mr Trichet's remarks, with the chances of euro-zone rates hitting 4.5 per cent by March falling to around 60 per cent, from 80 per cent a day ago.
The euro slipped briefly below $1.3500 to a session low of $1.3497 as Mr Trichet spoke, and was down 0.2 per cent from late yesterday. The euro was also down 0.3 per cent against the yen at 163.65, near its 163.40 session low, according to electronic trading platform EBS.
At 4 percent, euro-zone interest rates are at their highest level in nearly six years and are double what they were 18 months ago, when the ECB began its current tightening cycle.