Dollar nears 26-year low vs sterling Thursday

The dollar stayed near a 26-year low against sterling and a two-month trough versus the euro on Thursday, as investors awaited interest rate decisions by key central banks later in the session.

Analysts said the euro is approaching an all-time high against the yen, supported by expectations that the European Central Bank and its President Jean-Claude Trichet will reinforce market views for higher rates in the euro zone.

"Investors will focus on what the ECB will say about raising interest rates later this year," said Kengo Suzuki, currency strategist at Shinko Securities.

A Reuters poll of 93 analysts this week showed 84 expect an ECB rate hike to 4.25% in September, while the median forecast was for rates reaching 4.5% by year-end.

The ECB is expected to keep rates on hold for now at 4.0%.

Trichet, who is scheduled to speak after the ECB's meeting on Thursday, is likely to say that the bank will "monitor closely" inflation risks to signal a rate hike in September, analysts at JPMorgan Chase Bank said.

The phrase is typically used two months ahead of a rate rise, instead of "vigilance" which usually means a hike the following month, added the analysts at the bank.

"If the ECB shows a hawkish stance, the euro may extend its rise towards its record high against the dollar," said a senior trader at a Japanese bank.

The euro drifted sideways since late London trade at $1.3610 <EUR=>, off a two-month peak of $1.3639, but remained within a sight of a record high at $1.3683 hit in April.