By Deborah Levine and William L. Watts, MarketWatch NEW YORK (MarketWatch) — The euro turned slightly higher on the dollar Tuesday, as European Central Bank President Jean-Claude Trichet again managed to change focus from peripheral debt problems to fighting Europe’s inflation by hinting that interest-rate hikes are forthcoming. Still, nervousness about Greece’s eagerly awaited austerity votes later this week kept the single currency in a tight range against the greenback. The euro EURUSD +0.51% rose to $1.4377, after falling as low as $1.4236 and compared with $1.4275 in late North American trading on Monday. See real-time currency quotes and tools. The dollar index DXY -0.48% , which measures the performance of the U.S. unit against a basket of six currencies, fell to 74.949 from 75.338 Monday. Trichet on Tuesday said he is in a “strong vigilance mode” on inflation, Dow Jones Newswires reported. The phrase, used by Trichet earlier this month, is viewed as a signal the ECB is likely to hike its key lending rate when it meets July 7. Trichet was speaking at a news conference in Amsterdam. “Both the euro and European interest rates pushed higher this morning after Trichet again repeated that the ECB remains in ‘strong vigilance mode’ and highlighted that the ECB remains undeterred by developments in the periphery in its pursuit of the dual policy path,” said Andrew Cox, a currency strategist at Citigroup. Gains by the euro may be limited in the next few days though, as Greece’s parliament votes on an austerity plan needed to secure a €12 billion ($17 billion) round of bailout funds — and to move the country closer to an additional aid package from the European Union and the International Monetary Fund. Read more on Greece. “While euro-dollar is trading off its recent lows, it seems unlikely that the euro will gather much upward momentum ahead of this week’s crucial votes,” said Jane Foley, senior currency strategist at Rabobank. It could be difficult for the euro to rise above a resistance level around $1.4397, she said. Greek lawmakers are expected to vote on the fiscal package on Wednesday, followed by a vote on implementation legislation on Thursday. Greece’s main opposition party has said it will vote against the austerity measures. Read more on upcoming Greek vote. Prime Minister George Papandreou’s Pasok party holds a five-seat majority in the 300-seat legislature, but some members have threatened to vote against the package. Analysts also noted some broadening acceptance of a French bank plan proposed on Monday, which entailed rolling over half of Greek government bonds that mature in the next three years into new 30-year bonds, with a further 20% set aside to guarantee repayment, news reports said. “This plan will not fix Greece’s budgetary and structural deficiencies or stop the country mounting up more debt — only the Greek people and parliament can fix the underlying problem,” Foley said. “However, the French plan counters default risk over the next couple of years and may help restore some calm to the markets.” Lesser odds of Fed action Strategists at UBS Investment Research said that concerns about Greece weren’t the only factor at play Tuesday and that investors continue to adjust positions for a lower chance that the Federal Reserve will try any more U.S. monetary stimulus that could erode the value of the dollar. The Fed’s “clear message on near-term monetary policy has probably hit investors who were still positioned” for a third round of quantitative easing, they said. Many investors now believe so-called QE3 is no longer as likely as some had thought. The second major round of bond purchases by the U.S. central bank ends this week, and is seen as more likely to weigh on commodities, stocks, and other riskier asset classes that have been buoyed by the extra liquidity that the Fed’s pumped into the system. That could end up supporting Treasury bonds, analysts said. Also Tuesday, the Australian dollar AUDUSD +0.68% rose to $1.0523 from $1.0436. The British pound GBPUSD +0.06% recovered from an earlier decline to trade at $1.6023, compared to $1.5979 late in the prior session. Against the yen, the dollar USDJPY -0.11% bought ¥80.77, versus ¥80.86 late Monday.

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