The dollar remained under pressure against the euro on hopes that the European Central Bank is set to start raising interest rates soon, amid caution ahead of this afternoon's US employment data. The euro rose to two-week highs against the dollar overnight as the market interpreted a speech by ECB president Jean-Claude Trichet as signalling a switch to a bias towards monetary tightening. "The extent and breadth of the euro's move up appears to have been increased by the shift in ECB policy," said HBOS currency analyst Steve Pearson. In his monthly press conference, Trichet issued a stark warning on the risks to inflation, suggesting that euro zone interest rates could rise sometime in the coming months. The ECB is showing "strong vigilance" on inflation risks, he said, adding that "it is of the essence that inflation expectations remain firmly anchored at levels consistent with price stability". "Yesterday's press conference has brought the "when" that much closer, and increased the probability that the first move may come sooner than we currently envisage, perhaps early in 2006," said CALYON analyst Daragh Maher. The euro has already benefited from this and further upside could be limited, but the "immediate catalyst for a reversal" is hard to see, barring a major positive surprise in today's US non-farm payrolls report, he said. Investors are wary, given that disruptions to businesses along the Gulf Coast following the Katrina and Rita hurricanes could result in a very weak number. If the number comes in above expectations, however, the dollar could end the week on a positive note, analsyts said. Elsewhere, the pound remained weak, falling to eight-week lows against the euro, following yesterday's very disappointing UK manufacturing output data for August which reignited talk that the Bank of England could cut interest rates before the end of the year. The yen recovered slightly meanwhile after heavy losses yesterday after the Nikkei index of major Japanese stocks recorded its second-largest single day fall for the year yesterday.