Euro dips against dollar as ECB dampens hopes for May rate increase

The euro dipped against the dollar Thursday as the European Central Bank left interest rates unchanged and dampened expectations of an increase next month.

The 12-nation currency bought US$1.2218 in afternoon European trading, down from US$1.2291 in New York late Wednesday.

The ECB's decision to leave its key refinancing rate at 2.5 percent was expected, but ECB president Jean-Claude Trichet then said market expectations of a quarter-point increase next month were not in line with the bank's view.

The British pound also slipped as the Bank of England kept its interest rates unchanged at 4.5 percent Thursday for the eighth consecutive month. It dropped to US$1.7516 from US$1.7532.

The dollar was up against the Japanese currency, rising to 117.79 yen from 117.36 yen.

Higher interest rates make investments in some types of securities more attractive, pulling in international capital and boosting a currency.

Over recent months, the main beneficiary has been the dollar, with the U.S. Federal Reserve slowly but surely raising its rates. However, the euro had benefited from widespread anticipation of an increase in May.

While Trichet signaled that wasn't likely, he did say that increases later this year may be considered, even when it meets outside its Frankfurt headquarters - a nod to the bank's June 8 meeting in Madrid, Spain.

By contrast, U.S. Federal Reserve officials this week have cast doubt on future U.S. rate increases, the AP says. 

Kansas City Fed President Jeffrey Lacker said late Tuesday that the economy was "close to a balanced growth path," while Richmond Fed President Thomas Hoening said rates are "at the upper end of neutral" and "very close to where they need to be."