LONDON (AFX) - The euro traded lower in early trade as profit-taking took hold as the hype surrounding the introduction of euro notes and coins cooled off but euro zone PMI data helped cap early losses, dealers said. The apparent disagreement among Italian politicians over the change-over has also weighed on the currency. "Consequently, risks in the eur-usd are to the downside in the short term while we look for the continuation of the 0.88-0.92 usd trading range over the next 1-3 months," said Michael Klawitter, currency strategist at WestLB. Sonja Hellemann, currency strategist at Dresdner Kleinwort Wasserstein, doubts the introduction of euro notes and coins really did have any effect on the euro. Its appreciation in the first two days of the new year occurs every year. "Institutional investors don't care if it's in circulation," she said. PMI data across the euro zone helped the currency bounce back from the 0.8970 usd level. The French and Italian surveys were above the 50 point cut-off that indicates expansion and the German number was markedly improved. The wider euro zone was also encouraging at 49.2, dealers said. Sterling was also in focus this morning following cautious comments from Eddie George, governor of the Bank of the England, and new doubts about the Treasury's five economic tests over UK entry into the euro. George warned last night that interest rates may have to be raised to moderate consumer demand. Two pieces of data yesterday revealed the continued optimism of the British consumer. Both the housing market and retail spending remain buoyant, the Nationwide and the Confederation of British Industry said respectively. Meanwhile, newspaper reports this morning say that Gus O'Donnell, a leading Treasury official, told a government seminar last November that the decision to join the euro will ultimately be a political one and the government's five tests for entry cannot be clearly and unambiguously met. Rob Hayward, a currency strategist at ABN Amro, thinks sterling should regain some ground. "There is a somewhat more circumspect view about EMU entry," said Hayward, which could see sterling test the 0.62 level against the euro. The dollar remains on the sidelines this morning, with the markets awaiting this afternoon's crucial December non-farm payroll numbers. With the dollar well-supported on a quick recovery scenario, WestLB's Klawitter said it would need a massive surprise on the downside in today's labour report to change this assessment. A decline of over 150,000 in employment numbers could encourage a reassessment, he said.