The euro was up against the dollar this morning as speculation mounts that the European Central Bank (ECB) will raise interest rates to stem rising inflation.

It is also thought that the Bank of England (BoE) may have to raise rates as a report yesterday showed manufacturing rates increased at the fastest rate for two years.

This morning the dollar stood at 1.2811 to the euro and at 1.8437 to the pound.

There is concern that the faster economic growth in both Britain and the eurozone is fuelling inflation, leading to speculation both the ECB and the BoE will embark on a series of rate rises as the year continues.

"We can't rule out the possibility that the ECB will quicken its rate hikes," Akifumi Uchida, of Sumitomo Trust & Banking in Tokyo, told Bloomberg.

"The euro may climb toward $1.30" in coming days, he said.

A UK economic report by the Chartered Institute of Purchasing and Supply

(CIPS) revealed that manufacturing output rose to 55.4 in June, compared to 53.4 in May.

The index is measured by surveying purchasing managers and any figure above 50 indicates that the sector is expanding.

Roy Ayliffe, director of professional practice at CIPS, said: "The recovery of UK manufacturing was unremitting this month amidst reports from purchasing managers in the sector of robust growth in production and new business."