The dollar recovered further lost ground this morning as expectations of another interest rate hike in the US this month continued to mount in the wake of some relatively hawkish rhetoric from a US Federal Reserve policymaker. Though Chicago Federal Reserve President Michael Moskow stressed the difficulties involved in assessing the economic impact of Hurricane Katrina, he did keep much of the hawkish tone of previous speeches. Specifically he warned that inflation in the US was far from dead. "Moskow tends to be in the hawkish camp but his emphasis on price pressures suggests that the Fed is still looking to raise rates and any pause will be short-term," said Neil Mackinnnon, chief economist at ECU Group. The dollar had been buoyed for most of this year against the euro by a growing yield differential between the US and the 12-nation European single currency zone. The Fed has raised interest rates ten times since June 2004, and until last week's storm, was widely seen raising its rate target this month, in November and possibly in December. The European Central Bank, meanwhile, has kept its key refi rate unchanged at 2.00 pct since June 2003. However, expectations that the Fed may keep its key Fed funds rate unchanged at 3.50 pct on Sept 20 following a raft of weak economic data, sky-high oil prices and Hurricane Katrina, pushed the dollar down earlier this week to its lowest level against the single currency since the end of May. At one point, the euro traded as high as 1.2590 usd. "This week has seen sentiment towards the dollar stabilise," said Mackinnon. Analysts also said another reason the Fed may decide to raise rates again is that energy costs have eased from the initial spike following Katrina. New York's main contract now stands at just over 64 usd a barrel compared to the record 70 usd hit in the wake of the hurricane, which damaged and destroyed oil producing facilities in the Gulf of Mexico. "The dollar was also helped by US crude oil futures ending sharply lower yesterday as recovery of offshore production and refinery operations in the Gulf of Mexico continued after Hurricane Katrina's devastation last week," said Mansoor Mohi-uddin, a currency strategist at UBS. Meanwhile, the euro was under pressure as the outcome of the German general election on Sept 18 becomes less clear-cut. Recent opinion polls have suggested that Chancellor Gerhard Schroeder's Social Democratic Party is closing the gap on Angela Merkel's Christian Democrats. "The focus is moving towards the German election and the potential for stalemate there is negative for the euro," said ECU Group's Mackinnon. He noted that a stalemate may push economic reforms in the euro zone's largest economy to the background. Elsewhere, the pound was steady at recent highs against the euro after the Bank of England held its key repo rate at 4.50 pct. Last month, the rate-setting Monetary Policy Committee cut interest rates for the first time in over two years in response to subdued economic growth figures.