The euro slipped to a fresh 13-month low point against the dollar before recovering slightly on reports the European Central Bank has ruled out an imminent interest rate cut because of renewed inflation fears. The dollar, which was in the doldrums for much of the last couple of years due to concerns over the US twin deficits, has surged to the new highs in the wake of the current political crisis engulfing the EU as well as a greater emphasis on developments related to yield differentials. While the ECB is being urged to cut rates from 2.0 pct to help boost anaemic economic growth, the Fed is poised to continue raising the cost of borrowing from the current 3.25 pct in a measured manner. However, reports this morning suggesting that the ECB is more likely to raise the cost of borrowing because of inflation concerns has helped the single currency climb back off the 13-month 1.1868 usd lows hit earlier. "The euro managed to bounce back up to 1.1950 usd resistance following a story which cited an ECB source saying that markets should not expect a rate cut and, on the contrary, officials have discussed the possibility of a tightening in policy," said Mark Austin, global head of currency strategy at HSBC Overall, the dollar is expected to remain firm against the euro as investors anticipate solid US economic news this week, which will further cement expectations that the US Federal Reserve will continue raising the cost of borrowing in a measured manner in the months ahead. "The main driving force behind the current moves in the foreign exchange market is in fact the dollar recovery and the fact that we're seeing the data flow from the US continuing to come out quite robust," BNP Paribas analyst Iain Stannard said. "The market is now pricing out the prospect of a pause in the current strengthening cycle in the US," providing support for the dollar, he added. This rate differential has put the US currency within striking distance of the 2004 highs against the euro and the pound. Corresponding spot levels are 1.7481 usd for the pound and 1.1760 usd for the euro. Elsewhere, the pound was firm as expectations of an interest rate reduction from the Bank of England either this Thursday or next month receded following further better-than-expected economic data. The British Retail Consortium reported that UK high street sales fell in June for the third month running, but that the decline was more moderate than predicted, as good weather and reduced prices bought shoppers out. The BRC reported that like-for-like sales, which exclude new stores and added floor space, fell by 0.5 pct in June from the same period a year earlier. The figure is an improvement on May's 2.4 pct fall and a decline of 4.7 pct in April, and is comfortably above analysts' forecasts for a fall of 2.5 pct. The BRC survey came a day after a forecast-busting survey into the services sector, which accounts for around 70 pct of the UK economy, from the Chartered Institute of Purchasing Managers. CIPS reported that its purchasing managers index of activity in the UK services sector rose to 55.8 in June from 55.1 in May and expectations of a modest decline to 54.5. "Steady BoE policy this week should offer sterling a bit of support following its 8 cent decline over the past week," said HSBC's Austin.