The euro edged higher against the dollar, finding a firm footing above the 1.20 usd level after a series of strong economic indicators and the firm belief that the European Central Bank will lift interest rates further in the coming months. The ECB yesterday raised interest rates by a quarter point to 2.50 pct as expected and followed the hike with some hawkish rhetoric. ECB chief Jean-Claude Trichet emphasised the upside risks to prices and the raised forecasts for GDP, leading markets to price in another rate quarter hike in May of June. Some sections of the market predict that the benchmark refi rate will end the year at 3.00 or 3.25 pct. Daniel Katzive at UBS said Trichet's comments were consistent with the UBS house view that the ECB will lift rates to 3 pct by September. Further propping up the euro, euro zone data continued to come in strong. The euro zone services sector PMI index rose to 58.2 in February, the highest reading since September 2000 and beating expectations for a reading of around 57.2. The robust reading follows on the heels of a strong manufacturing sector equivalent earlier in the week. Obviously, euro zone economic recovery is becoming more broad based, suggesting that the economy can withstand higher interest rates. The pound also got a lift from strong UK data showing that service sector expansion picked up pace sharply in February. The Chartered Institute of Purchasing and Supply's measure of service sector performance rose to 58.9 in February from 57.0 the previous month. The latest reading is the highest since April 2004 and beats the corresponding figure in the 12-nation single currency area. Howard Archer at Global Insight described the release as "impressively robust." "It will certainly boost Bank of England's confidence that the economy is improving, although much still depends on the strength of consumer spending going forward," he said. The data makes certain that the Bank of England will keep interest rates unchanged next Thursday, he added. Elsewhere, the yen was steady against the dollar, failing to benefit from better-than-expected inflation data as finance minister Sadakazu Tanigaki stressed that the Bank of Japan should tread carefully before opting to raise interest rates. Tanigaki said Japan is still experiencing mild deflation and said it is important for the BoJ to "look at the facts without any preconceived notions" when it comes to policy decisions. Japanese core CPI rose by 0.5 pct year-on-year in January, the biggest increase since March 1998 and above analysts' expectations for a rise of 0.4 pct. "The data are consistent with a firming in prices after years of deflation, opening the way for a monetary policy change, perhaps as early as the BoJ meeting next week," analysts at BNP Paribas said.