German economic confidence boosts euro

Published: 12 Dec at 9 AM Tags: Euro, Dollar,

The euro has strengthened against the US dollar as a monthly poll in Germany indicates better than expected economic sentiment that could keep the country from entering a recession. The figures released by think tank ZEW have sharply improved the morale of analysts and investors in Germany, encouraging them to take more risks. Broad-based risk-taking has also been encouraged by indications that the US will avoid a fiscal cliff that could push the world’s largest economy into recession.

The Federal Reserve is currently meeting to discuss introducing further measures to pull the economy out of the doldrums and many analysts are expecting the central bank to announce bond buying worth $45 billion per month.

Experts are more positive that the White House and members of Congress will come to a deal on how to reduce America’s deficit. The so called fiscal cliff is fast approaching and an agreement on spending cuts and tax increases is needed before the end of the year.

The euro hit $1.3014 before settling at $1.3004, an increase of 0.5 per cent. It is hoped that the ZEW data will cause the European Central Bank to look again at its forecast that the German economy is headed for cuts in interest rates and disappointing growth early next year.

Suggestions that the Fed will look to more easing helped to push both the New Zealand dollar and the Canadian dollar. The green back improved slightly against the yen on expectations that Japan’s elections will put pressure on the country’s central bank to create stimulus.