"While the IFO and PMI do not always exactly follow each other, the correlation is sufficiently close for us to forecast another decent rise in the IFO. German manufacturing activity continues to outpace that in much of the rest of the euro area."
- Analysts from Lloyds Bank
The single currency moved above strong psychological level of 1.37 on Monday following a release of the German Ifo business climate, suggesting Europe's number one economy started this year on a high note. The most traded currency pair is mostly driven by global factors, and strong Ifo index just provided additional support to the exchange rate.
A monthly survey showed the measure tracking the mood in the German business sector hit a two-and-a-half year high this month. The index that mirrors balances of the business situation and expectations stood at 110.6 in January, compared with 109.5 a month earlier and outpacing analysts' projections of a 110.0 reading. At the same time, the current situation gauge came in at 112.4, also posting a solid improvement. The string of business mood is closely watched and has a strong impact on market's movement as these reports are interpreted as an early indicator of economic health in Germany.
Activity in manufacturing sector expanded at the fastest pace in 30 months, while inflation climbed higher 1.4% in Germany in December from a year ago. And even a disappointing figure from ZEW research company is not able to dampen speculations of a strong growth in the foreseeable future.
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