LONDON (AFX) - The euro edged lower in featureless midday trade, despite a better performance in European equities and growing conviction that the European Central bank will cut interest rates at its forthcoming meeting on March 29.
"The performance of the euro has been disappointing today," Julian Jessop at Standard Chartered said. "You would have expected the euro to be stronger for two reasons, one is the recovery in the stock market and the other is hopes that the European Central Bank will be cutting interest rates as early as Thursday (as this will boost European asset markets)," he added.
"Given this positive news the euro performed quite badly, which is a bearish sign," the analyst added.
According to Jessop it needs a more aggressive monetary easing by the ECB to reverse sentiment in the single currency.
"It looks like the euro is heading back towards 0.88 usd by the end of the week, even if the ECB does cut rates," Jessop said. "The euro really needs a 50 basis point rate cut on this Thursday to move higher."
Meanwhile, the release of slightly stronger-than-expected German inflation data had little impact on the currency markets, dealers said.
"What is more important is that various ECB members have been playing down the importance of inflation numbers more recently," Jessop said.
German import prices rose 0.6 pct in February from January and were up 5.4 pct from a year earlier. Excluding crude oil and petroleum products, import prices rose 5.3 pct in February year-on-year and were up 0.2 from January.
At the same time, producer prices in Germany rose 0.3 pct in February from January and were up 4.7 pct from a year earlier.
"All in all, the data suggest that pipeline price pressures in the euro area are higher than generally appreciated, and much higher than survey data suggest... But with energy prices contributing less and less to the headline rate, these figures should improve in coming months," Klaus Baader at Lehman Brothers said.
Elsewhere, sterling appreciated slightly against all major currencies.
According to Steven Pearson at Halifax the upward revision in fourth quarter GDP figures were slightly favourable for sterling as they show the UK economy still growing well.
"However I doubt that the (GDP)figures will put a break on the rate cut next week as the Bank is concentrating more on consumer confidence now," Pearson added.
Michael Hume at Lehman Brothers also believes that the MPC is ready to slash rates by 25 basis points to 5.5 pct as early as next week.
"The final estimate of Q4 GDP contained upward revisions, as we suspected it might. However, with the Bank of England half-expecting this change too, it is unlikely to have much impact at the April MPC meeting... All in all, we still expect the MPC to trim rates in April. We put the chance of a 25 bp reduction at 60 pct," Hume said.
UK fourth quarter GDP -- at constant 1995 market prices -- rose 0.4 pct from the third quarter, for a 2.6 pct year-on-year increase, National Statistics said.
This compared with provisional estimates which showed GDP rising 0.3 pct on the quarter and 2.5 pct year-on-year.