By Toni Vorobyova

THE euro set a new record against sterling and approached its record highs versus the dollar after comments from Bundesbank president Axel Weber reinforced the view that the European Central Bank is unlikely to cut rates soon.

Speaking after data from four German states pointed to a likely inflation pick-up in the euro zone's biggest economy, and thus in the 15-nation bloc as a whole, ECB Governing Council member Weber said price pressures were "alarmingly high".

The euro rose to 79.29p against a British currency weighed down by weak UK housing data and growing expectations that the Bank of England will cut interest rates again as soon as April. In morning trade, the euro was up 0.2pc against the dollar at $1.5812, less than one cent below last week's historic peaks.

"We had the comments from Weber, and also some high German inflation rates, so probably the trend for the dollar for the next couple of days is still down," said Marcus Hettinger, global FX strategist at Credit Suisse in Zurich.

The dollar later trimmed its losses versus the euro after data showed US personal income for February came in higher than expected and a key core inflation measure was in line with market forecasts for a rise of 0.1pc.

"Comments from the Fed overnight continue to paint a grim picture of the situation in the US and there's an increasing risk of the US moving into a recession," said Ian Stannard, senior foreign exchange strategist at BNP Paribas.

Stability

Weber repeated that the ECB "will act'' if its price-stability goal is threatened. German public sector workers look set for a pay deal of more than 4pc, while steel workers have agreed rises of more than 5pc. The state data suggests German national inflation may have picked up from the current 3.3pc -- itself a record since the euro's launch.

Weber's remarks appear to differ from those of Belgium's Guy Quaden. He told the 'Wall Street Journal' in an interview published on Thursday that slowing economic expansion "should alleviate inflation pressures".

Weber said economic growth in the euro area, while "moderating'', is "fundamentally robust". Economic expansion and "strong'' money-supply growth pose "continued upside risks to price stability in the medium-term,'' he said.

German growth will fall short of the Bundesbank's December forecast of 1.6pc for 2008, but he warned against "growth pessimism'' and said Germany is well positioned to profit from continued global expansion.