LONDON (AFX) - The euro inched higher in early trade on expectations of an imminent rate cut by the European Central Bank, perhaps as soon as Thursday, dealers said.
"The euro is drifting a little bit higher in what I think is an easing of the downward trend that we've seen recently," Halifax economist Steven Pearson said.
"I think doubts about the euro have stabilised a little bit now, and the currency is buoyed by ECB rate cut expectations," he said. Dealers said that while the ECB's governing council could conceivably cut the refinancing rate on Thursday, dissension amongst the 18 members could mean it will wait until its April 11 meeting before finally making a move.
Such key members as chief economist Otmar Issing, vice-president Christian Noyer and Bank of France governor Jean-Claude Trichet have signalled a cut. However, Bundesbank president Ernst Welteke suggested the ECB will need more evidence before easing policy.
"We're picking a cut in two weeks' time. It's a very close call as the ECB governing council looks pretty split. They like to get a consensus so they may well hold off on Thursday," Pearson said. Dealers said euro zone M3 figures due out over the next few days may have a bearing on the timing of the rate cut.
"It's usually the last Friday of the month that they're out, but potentially it could be sooner so that could have an effect on the decision," Pearson said.
Dealers said the euro boosted sterling which the Organisation for Economic Cooperation and Development noted yesterday is increasingly linked to the single European currency rather than the dollar.
They said yesterday's upward revision of gross domestic product figures for the fourth quarter was a positive factor for sterling which had been labouring against the dollar recently.
Dealers cited research from the Bank of England showing the underlying rate of inflation is 1.2 pct as strengthening the case for an interest rate cut at the monetary policy committee's April 5 meeting.
With no significant European data due for release today, the focus will remain on equity movements as well as U.S. durable goods orders for February, consumer confidence numbers for March and a speech by Federal Reserve chairman Alan Greenspan.