RTTNews - In early European deals on Tuesday, the euro surged up to new multi-day highs against its U.S., Japanese and Swiss counterparts, as German economic sentiment rose more than expected in May, signaling the worst of the recession may have passed.
The ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict economic developments six months ahead increased to 31.1 in May from 13 in April. The index rose more than the expected level of 20.
With regard merely to the economic activity, more and more signs indicate that the worst seems to be over. However, with regard to the labor market development the worst still seems to come, said ZEW President Wolfgang Franz.
Further, the ZEW said its economic sentiment indicator for Euro zone increased to 28.5 from 11.8 in the previous month and well above the expected reading of 18.
A jump in stock prices also boosted the European currency. European stocks rose today, gaining ground for the fourth straight session, propelled by surging banking stocks such as Deutsche Bank, while investors braced for U.S. housing data.
At 4:40 am ET, the FTSEurofirst 300 .FTEU3 index of top European shares was up 1.6 percent at 873.67 points.
The index has surged up 35 percent since reaching a lifetime low in early March, as fears over a global economic depression receded, but is still down 47 percent from a multi-year high touched in mid-2007.
European stocks have gained for the past two months on expectation that government and central bank efforts to revive economic growth will work. While the German economy shrank at a record pace in the first three months of the year, manufacturing orders and exports unexpectedly rose in March and business confidence rebounded from a 26-year low in April.
Confidence in the global economy rose to the highest level in 19 months in May. Federal Reserve Chairman Ben Bernanke said on May 5 that the U.S. housing market has shown some signs of bottoming after a three-year slump, which triggered the global recession.
The euro, which closed yesterday's trading at 1.3562 against the dollar strengthened to a 5-day high of 1.3658 during early European deals on Tuesday. On the upside, 1.372 is seen as the next target level for the euro.
Ongoing bets that the global economy is improving have warmed demand for riskier trades in past weeks. This has stung both the dollar and the yen as some traders unwind positions in the two currencies, perceived to be safe-haven options during times of uncertainty, which were taken on since autumn when the global financial market crisis escalated.
Currencies considered to be high-risk, including the euro, sterling and the higher-yielding Australian and New Zealand dollars were sold off, but have since begun to recover.
The euro gained 4% against the dollar earlier this month and reached a 7-week high of 1.3723 on May 13. Dismal economic reports, which were released from Europe last week weakened the euro 2% from a 7-week high to hit a 10-day low of 1.3425 yesterday.
Euro zone industrial production declined at the fastest pace since record began in early 1990, the European Union's statistical office, Eurostat said on May 13. Industrial production slipped at a record 20.2% in March from the previous year and it fell more than an expected 17.6% decline.
Meanwhile, a flash estimate released by Eurostat on May 15 showed that the euro area GDP declined 2.5% sequentially in the first quarter of 2009 compared to a 1.6% decline in the fourth quarter. Economists were looking for a 2% fall in the first quarter. The first quarter decline was the largest since 1995.
A rally in European and U.S. stocks and an unexpected Euro-zone trade surplus report helped the euro bounce back from a 10-day low yesterday.
Euro zone trade balance unexpectedly swung to a surplus in March, despite exports and imports being in the negative territory, official report showed yesterday. The unadjusted trade balance rose to a surplus of EUR 0.4 billion in March from a revised EUR 1 billion deficit in February and from a EUR 2.3 billion shortfall in March 2008. Economists had expected a deficit of EUR 0.3 billion.
Thus far, the euro-dollar pair has gained 1.7%.
In early European trading on Tuesday, the euro rose to a 6-day high of 131.87 against the yen. This may be compared to yesterday's close of 130.60. If the euro-yen pair moves up further, it may likely target the 133.6 level.
A revised report from Japan's Ministry of Economy, Trade and Industry revealed today that industrial production rose 1.6% in March from the previous month, following a 9.4% decline in February. Year-on-year, production plunged 34.2% in March.
The euro-yen pair soared to near a 1-month high of 134.85 on May 11. Although the European currency has declined 6% thereafter on the back of weak equities, it regained momentum after hitting a 19-day low of 127.01 yesterday. Since then, the euro has advanced 4% against the yen.
The euro climbed to a 12-day high of 1.5167 against the Swiss franc in early European deals on Tuesday. The next upside target for the euro is seen at the 1.52 level. At Monday's close, the euro-franc pair was quoted at 1.5111.
The euro plummeted to a 2-month low of 1.5010 against the franc on May 15 as weaker-than-expected first quarter GDP reports from major European economies sparked renewed concerns about the depth of the global economic recession. But the euro-franc pair bounced back in the New York session on Friday and extended its uptrend this week. The pair has appreciated more than 1% since reaching a 2-month low.
On the other hand, against the pound, the euro slipped to a 12-day low of 0.8788 in today's early deals. If the euro drops further, it may likely target the 0.8767 level. The euro-pound pair was worth 0.8839 at yesterday's New York session close.
The pound rose today after ICAP Plc and Marks & Spencer Group Plc posted profit that beat analysts' estimates, spurring speculation the worst of British recession is over.
The U.K. inflation report, which was released at 4:30 am ET today, did not show any major impact on the euro-pound pair. U.K.'s consumer price annual inflation eased to 2.3% in April from 2.9% in the previous month. Economists had expected the annual rate to slow to 2.4%. On a monthly basis, consumer prices climbed 0.2%, slower than the expected rise of 0.4%.
Investors are now likely to focus on the U.S. housing starts report, which is slated for release at 8:30 am ET. The headline housing starts figure is expected to climb to 527,000 from March's figure of 510,000. The report is also expected to show building permits at 530,000 for April, up from previous month's level of 516,000.
Minneapolis Federal Reserve Bank President Gary Stern is due to speak to the Willmar Lakes Area Chamber of Commerce in Willmar, Minnesota at 1:15 pm ET.
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