FOREX-Dollar inches up on ECB remarks; cable hits $1.60

The dollar inched up on Wednesday, lifted against the euro after a European Central Bank policymaker said further interest rate cuts can't be ruled out but down against a buoyant British pound, which scaled $1.60.

ECB Governing Council member Erkki Liikanen was quoted as saying on Wednesday that the bank's current key interest rate of 1 percent isn't necessarily the lowest it can go. [ID:nLAG00345]

Surprisingly strong demand at Tuesday's auction of two-year U.S. Treasury notes, particularly from foreign central banks, also continued to support the dollar in early trade Wednesday, allaying fears over investor appetite for U.S. assets.

Sterling outperformed the euro on Wednesday, hitting $1.60 for the first time in almost seven months as investors continued to pare back the large bets against the currency built up after the collapse of Lehman Brothers last year.

A thin economic data calendar from Europe on Wednesday leaves currency traders to take their cue from equity markets which, along with commodities, remain buoyed by Tuesday's sharp rise in U.S. consumer confidence.

Niels Christensen, Forex strategist at Nordea in Copenhagen, said traders may be concerned over U.S. sovereign ratings but at the same time "aren't too enthusiastic" about the euro zone from a data or banking sector standpoint.

In this context, Liikanen's commments echoing what some other ECB Governing Council members have said recently about the possibility of further rate cuts "are obviously not supportive for the euro."

At 0800 GMT the euro, which has risen about 10 percent in three months and hit a four-month peak above $1.4050 last week, was back below $1.40 on Wednesday to trade at $1.3975 , down 0.1 percent on the day.

The dollar was up 0.1 percent against a basket of six major currencies .DXY at 80.19, although it was still within sight of a five-month low set on Friday just below 80.00.

Sterling was up 0.3 percent at $1.5977 , having traded as high as $1.6010.