Euro jumped against the dollar after the German Ifo index rose more unexpectedly in March.
Germany’s business sentiment improved for the fifth month in a row in March to 109.8 from a revised 109.7 in February. This was a good sign that Europe’s largest economy is standing its own ground and continues to outpace the rest of the euro zone that is still enduring the effects of the debt crisis.
The German Ifo think tank based the monthly sentiment survey on 7,000 companies in Germany. Expectations were for the index to remain steady at 109.6 in March.
Today’s data are a sharp improvement from last week’s weak euro zone PMI numbers.
The strength in domestic demand is helping the German economy even as the global economic slowdown and peripheral weakness puts pressure on external demand.
Ifo’s economist Klaus Wohlrabe said the Ifo increase in March was mainly driven by better retail sales in Germany, and is a good indication that Germany can avoid a recession.
Wohlrabe said that inflation and oil price level not a big danger at the moment for firms, but poses potential risk. He added that firms are getting used to the euro zone debt crisis, no sign that it is having a strong influence on them. Also he believes the ECB interest rate level is appropriate.
EURUSD jumped to 1.3262 within minutes of the data released at 10 am German time, rising from 1.3235 pre-data levels.
EURJPY rose to 109.78 from 109.46 immediately after the data.
However, gains for the euro proved short-lived, and EURUSD soon dropped to a low of 1.3191 an hour after the data, while EURJPY fell to 109.16. The data was not enough to sustain strength in the single currency, as euro zone debt concerns still linger.