The euro strengthened against the dollar after soft retail sales data did little to sway expectations for rising euro zone interest rates. Euro zone retail sales for April were up 0.2 pct from March, missing expectations for a 0.9 pct rise following March's 0.5 pct gain. Madeleine de Villiers, European economist at Capital Economics, said the data are "much weaker than we had expected" but nonetheless pave the way for retail sales to be stronger in the second quarter than the first. "Even if retail sales stagnate in May and June, they would still increase by 0.6 pct in Q2 -- much stronger than the 0.1 pct fall seen in Q1," she said. Furthermore, "the outturn was driven by the smaller economies, while sales in Germany showed a marked improvement," she added. Earlier, the May PMI survey of the euro zone's services sector came in just above expectations at 57.3, while the pricing measure eased to a five-month low of 53.1. The data did nothing to dispel expectations that the European Central Bank will hike its benchmark repo rate by a quarter point to 4 pct tomorrow, following a string of robust economic figures. After that, more and more Bank watchers think the ECB will hike again, possibly as soon as September "Weaker-than expected retail sales growth in April will not deter the ECB from hiking interest rates by a further 25 basis points to 4 pct tomorrow," said Howard Archer at Global Insight. Meanwhile, a similar picture in the UK helped the pound strengthen against the dollar, with this morning's data unlikely to alter market expectations that the Bank of England will keep its key repo rate unchanged at a six-year high of 5.5 pct on Thursday The services PMI for May came in slightly better than expected at 57.2, although pricing pressures appeared to ease, while the British Retail Consortium reported that May sales growth came in well below expectations at just 1.8 pct, the lowest since November "Today's data suggests that while higher interest rates are having a relatively limited impact on services sector activity, services firms' pricing power and retail sales growth are both softening," said Vicky Redwood, UK economist at Capital Economics.