Monday, May 26, 2014

Euro Dropped as German Ifo business climate index declined

The euro fell to three month lows against the broadly stronger dollar on Friday after data showing that German business sentiment deteriorated in May added to expectations for easing by the European Central Bank at its upcoming June meeting. The drop in the euro came after a report showed that the
German Ifo business climate index declined to 110.4 in May; the lowest reading this year, from 111.2 in April, indicating that economic activity could slow in coming months.

The data came one day after a report showing that manufacturing activity in the euro zone expanded at the slowest rate in six months in May. Recent comments by senior ECB officials have signaled that the bank is open to acting as soon as June to stop inflation in the currency bloc from falling too low. On Thursday, ECB Governing Council member Jens Weidmann said the bank is prepared to take unconventional measures to counter the risks of low inflation in the euro zone.

The dollar was boosted after data on new home sales added to signs of a recovery in the housing market. The Commerce Department reported that sales of new homes rose by a larger-than-expected 6.4% to 433,000 in April, after two months of decline. Analysts had been expecting a figure of 425,000. March's number was revised up from 384,000 to 407,000.

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