The euro declined against the dollar yesterday as the European Central Bank (ECB) raised borrowing costs to a five-year high.

In Thursday foreign exchange trading the euro was down 0.4 per cent versus the dollar at $1.3128, and 0.7 per cent down versus the yen, at ¥154.05.

The losses were galvanised by remarks from ECB chief Jean-Claude Trichet following the decision, saying that fiscal policy was on the "accommodative side" on interest rates.

His dovish remarks threw into doubt previous market expectations about how wide the gap between US and euro-zone rates is likely to expand.

"Mr Trichet is not as hawkish as markets expected," Steven Butler, director of currency trading at Scotia Capital, told Reuters. "That took the euro lower."

Traders will now be waiting for US employment data due for release today in order to gauge how far the euro is likely to slip versus the dollar.