LONDON (AFX) - The euro was slightly stronger in midday trade leaving investors puzzled, especially in light of this morning's weaker than expected euro zone purchasing managers index which indicates a contraction in the euro zone economy, dealers said.
The euro zone PMI index for the manufacturing sector fell to a seasonally adjusted 49.3 in April from 51.2 in March.
"There are always plenty of believers in the euro," Paul Bednarczyk, a forex specialist at 4CAST, said.
"People are disappointed with the numbers but will still give the euro a chance," he added. Daragh Maher, senior economist at ING Barings said, "The euro has not had a great time recently."
He added that European Central Bank president Wim Duisenberg "said inflation risks are more balanced but the signals on growth are still hawkish -- they're not afraid of the economy falling into the abyss".
Maher said, "On the inflation side, it is status quo, their views have not changed. There is no evidence in light of their comments today, that this morning's PMI data has caused them to take a more doveish view. "Euro's strength could be due to short-covering perhaps. Maybe the market's getting a sniff that the U.S. labour report on Friday will be worse than expected," he added.
In the UK, sterling was weaker on profit-taking after yesterday's rise, dealers said.
"There was a bizarre bounce yesterday afternoon and now we are back to the level seen before this," Maher at ING Barings said. "UK PMI was weaker than expected leading to expectations of a rate cut which is negative for sterling," he added.
The UK construction sector continued to expand in April, according to the latest survey of the sector from the Chartered Institute of Purchasing and Supply.
The CIPS reported that its headline activity index stood at 57.3 in April, for the twenty seventh straight month of expansion. The index was at 56.9 in February.
"Sterling had strength going into CBI but came off on the back of it, which is surprising," Adam Chester, chief economist at Halifax, said.