The dollar rose against the euro on Wednesday after a European Central Bank policymaker said further interest rate cuts couldn't be ruled out, but it fell against a buoyant British pound, which reached $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. That prompted some profit taking after the euro tested $1.40 again overnight, while surprisingly strong demand at Tuesday's auction of two-year U.S. Treasury notes allayed fears over investor appetite for U.S. assets, supporting the dollar. "It's primarily a euro/dollar story and the fact that we poked up above $1.40 again has prompted some profit taking, the dollar isn't looking that firm elsewhere," said Adam Cole, global head of FX strategy at RBC Capital Markets. "Overall it's a mixed performance for the dollar and that reflects the fact that we're not seeing much of a lead from the stock market, so we'll wait and see where the U.S. opens." Sterling outperformed the euro, 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. At 1000 GMT the euro, which has risen about 10 percent in three months to hit a four-month peak above $1.4050 last week, was back below $1.40 on Wednesday, trading at $1.3952, down 0.2 percent on the day. The dollar was up 0.2 percent against a basket of six major currencies at 80.21, although it was still within sight of a five-month low set on Friday just below 80.00. Sterling was up 0.5 percent at $1.6017, having traded as high as $1.6023. 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.

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