The euro rose against the dollar Wednesday, after new inflation figures showed interest rates in Europe were likely to increase this year and oil prices began to rise. In morning trading in Europe, the 12-nation currency bought US$1.2101, up from US$1.2095 the night before in New York. The British pound bought US$1.7651, down from US$1.7664 in New York. The dollar bought 115.22 Japanese yen, down marginally from 115.51 the day before. The rise of oil prices to more than US$65 a barrel this week affected the dollar, too, with analysts saying that oil-producing countries may likely diversify their dollar-denominated reserves with other currencies, including the euro and the pound. "The timing and extent of any diversification operation by (oil-producing) central banks remains uncertain, but it will remain a long-term negative factor for the dollar," said Ian Stannard, a senior currency strategist with BNP Paribas in London. On Tuesday, Germany's Federal Statistics Office confirmed a previous estimate that inflation in 2005 averaged 2 percent, the highest rate since 2001, driven by rapidly climbing energy prices. Late last week, ECB President Jean-Claude had warned the bank would be vigilant about inflationary pressures amid signs that growth is picking up.