The euro jumped 25 pips against the dollar after better than expected data on the German ZEW Economic Sentiment report.
A strong reading on German business sentiment index suggested that the euro zone’s largest economy , often referred to as Europe’s “powerhouse”, is growing despite the region’s debt crisis.
EURUSD surged from 1.2771 before the news to 1.2790 within a minute of the data at 10:00 GMT.
German ZEW institute said its reading of German economic sentiment rose to -21.6 this month, from -53.8 in December, its biggest monthly rise ever.
However, the euro zone is made up of seventeen different nations with different economies, especially in the periphery, like Spain and Greece which have high debt loads. So caution should be taken not to simply focus on Germany. Even the German economy shrank in the final quarter of last year.
Meanwhile, at the same time a separate report on euro zone inflation was released. Annual inflation in the euro zone fell to 2.7% in December, from 3% in November, according to data from Eurostat released Tuesday.
Compared to a year earlier, the rate was 2.2%, while ona monthly basis, December inflation in the euro zone rose 0.3% against the prior month. Annual inflation in the European Union was 3% in December compared to 3.4% in November. A year earlier, that rate was 2.7%. Compared with November 2011, annual inflation fell in 21 member states, was stable in two and rose in two. For the euro area, the highest annual inflation rates in December were found in housing, transport and alcohol and tobacco.