Economic growth in France and the rise of the euro against the dollar has fuelled speculation that the European Central Bank will raise interest rates next month.

This morning the euro stood at 0.7823 to the dollar and 0.6788 to the pound.

The economy in France, Europe's third largest, grew faster in the first quarter and consumer confidence increased as unemployment falls and exports climb.

The French national statistics office, Insee, said gross domestic product rose 0.5 per cent in the first three months of 2006.

The growth in the French economy together with that of the euro zone as a whole, which rose 0.6 per cent in the first three months, has increased expectations that the European Central Bank will raise interest rates next month.

Speaking at the European Commission's economic forum OECD secretary-general designate Angel Gurria said the economic outlook for the euro zone is "fairly good" and was "more sustainable in the short term".

It is expected that the dollar will reverse some recent losses against the euro today following news that the US Reserve will also raise rates.

"On the basis of the data, you have to say its backing up the case for the Fed to take rates higher, which is lending support to the dollar,''

Tony Morriss, a currency strategist at Australia & New Zealand Banking Group, told Bloomberg.