ECB, Bank of England hold firm on

Markets will be paying close attention to what ECB President Jean-Claude Trichet says about how the central bank plans to ward off more disruption from U.S. subprime credit woes and the dollar, which has weakened since the U.S. Federal Reserve made a larger-than-expected rate cut.

In London, the Bank of England decided to leave its key interest rate unchanged at 5.75 percent, a move most analysts had predicted. Howard Archer, chief U.K. and European economist at Global Insight, said a move by the British bank to cut rates would have been premature.

“Indeed, a cutting of interest rates at this stage could have been seen as a panic move and risked damaging the bank’s anti-inflation credibility,” he said in a statement.

Trichet and Bank of England governor Mervyn King are under an unusual degree of political pressure, with Trichet facing calls from France’s new President Nicholas Sarkozy for the ECB to do more to dampen the euro’s rise, while King has been grilled over the fallout from the U.S. credit crisis.

The euro hit an all-time high Monday versus the dollar of US$1.4284 and the European Union’s employers federation warned Wednesday that the trend was beginning to hurt European businesses.

Analysts expected the ECB to hold firm, but the focus will now look toward when the bank does actually start moving, said Holger Schmieding, Bank of America’s chief European economist.

“The strong euro and the persistent dislocations in the money and credit markets will likely force the ECB to keep rates on hold for the foreseeable future,” he said. “The markets have done the work of tightening euro-zone monetary conditions for the ECB.”

But the bank is also facing recent inflation figures showing prices rising 2.1 percent in the euro zone — above the bank’s goal of less than but close to 2 percent — plus persistently high oil prices and a growing economy, meaning the inflation threat still looms large.

The U.S. Federal Reserve cut its key interest rate by an unexpectedly large half a percentage point last month, to 4.75 percent from 5.25 percent, in an effort to reassure markets and prevent a steep credit and housing slump from leading to a general U.S. economic slowdown.

That move, however, worsened Trichet’s problems by accelerating the dollar’s plunge against the euro.

Higher rates tend to strengthen a currency by attracting investors seeking better yields, and the ECB must now face the risk that euro-zone rate increases could speed the dollar’s drop.

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