LONDON (AFX) - The euro came under renewed pressure in midday trade, slumping below the 0.86 usd mark, after better-than-expected German data reduced hopes of an imminent rate cut from the European Central Bank, dealers said. In addition, the ECB's room for manoeuvre on Feb 7 is expected to be limited by a raft of data this week showing that inflationary pressures in the euro zone have been exacerbated in January by the introduction of euro notes and coins. "This leaves the ECB in a difficult position with regard to interest rates and it may decide to hold fire," said BNP Paribas currency strategist Ian Stannard. Earlier, the third consecutive rise in Germany's Ifo business sentiment index fuelled hopes that the euro zone's largest economy have passed its trough. January's Ifo index was higher at 86.3, up from 85.8 in December and ahead of the consensus forecast of 86.0. Neil Mackinnon, senior currency strategist at Merrill Lynch said the Ifo data and the inflation spike complicates the interest rate position and highlights the dilemma the ECB faces. "The fundamentals lag well behind what investors anticipate from the US economy," he said. Though the euro zone economy may have hit its cyclical lows, the likely bounceback is expected to be well short of what is anticipated in the US. The FOMC meets tomorrow and is expected to leave US short-term rates unchanged after a clutch of improving data. Both Mackinnon and Stannard think that euro/dollar could test last year's lows of 0.8350 usd, possibly as early as this week. The euro's continuing depreciation has also dragged down sterling and the swiss franc against the dollar.