The euro jumped to its highest level in a week against the dollar on Friday after a better-than-expected German business confidence survey fanned hopes that the worst may be over for the eurozone economy. Gains in the euro helped to drive the dollar down broadly, pushing the US currency more than 1 percent lower against the yen and its weakest level in a weak against a basket of currencies.
The single European currency climbed to a two-week high against sterling as the pound came under selling pressure after data showed that the UK economy contracted by its biggest amount in 30 years in the first three months of the year.
The euro enjoyed broad gains following news that the German Ifo business climate index rose to 83.7 in April from 82.2 in March, beating forecasts for 82.3, while the survey's current conditions and expectations indices also rose.
"(The data) suggests that Q2 eurozone growth might have turned the corner a little bit, so people wanted to put on a bit more risk," said Chris Turner, currency strategist at ING in London.
Analysts said that the euro extended its recovery, pulling away from a one-month low hit earlier in the week, after the data provided some positive news for the euro, which had been suffering on speculation that limited additional interest rate cuts in the eurozone may hinder the economy.
Market players were awaiting developments at the meeting of Group of Seven finance ministers in Washington as they discuss the global economic crisis, though analysts said no major market-moving developments are expected.
At 1154 GMT, the euro traded 0.7 percent higher at $1.3240, not far off an earlier session high of $1.3274, its highest in a week. Against sterling, it rose 1.7 percent to 90.82 pence, according to Reuters data, its strongest in two weeks. The dollar was 1.3 percent lower at 96.88 yen, having earlier hit 96.65 yen, its lowest since end-March.
The yen rose broadly as ongoing concerns about the US stress tests on banks and the fate of US automakers encouraged investors to seek the perceived safety of the Japanese currency. Broad weakness in the US currency drove the dollar index as low as 84.734, its weakest since mid-month. Analysts said that more dollar weakness may be in store if the index ends the week under the key 85 level.
Despite its gains against the dollar, the euro fell 0.5 percent against the yen to 128.31 yen, which was boosted broadly by its gains against the dollar. Some traders continued to shun riskier trades in favour of the perceived safety of the Japanese currency, which helped to pushed the Australian dollar 0.5 percent lower against the yen.
Sterling fell by 0.9 percent to $1.4576, struggling after data showed that the UK economy contracted by 1.9 percent in the first quarter from the previous three months, much more than the 1.5 percent fall forecast and the biggest contraction since 1979.
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