Euro hits three-month low after German data surprise

Asian shares hit one-year highs on Friday and bond yields were on track to notch up a broad-based rise on the week, but European markets softened after a closely watched measure of German business confidence came in weaker than expected.

The Ifo business climate index fell in May to its lowest this year, following data that showed growth in the first quarter in Germany was its strongest in three years but gave a dimmer outlook for the coming quarters.

This raised expectations that the European Central Bank will ease policy next month, pushing the euro down to a three-month low against the dollar and breaking long-term technical support that had held firm for almost nine months.

The euro was down a fifth of 1 per cent on the day at $1.3630 , the lowest in three months and crucially below technical support at the 200-day moving average of $1.3636.

The euro has flirted with that support three times this week but has not closed below it. This could be the first day it has done so since early September last year.

Sovereign credit ratings upgrades on Friday for Spain and Greece had little impact on European markets as their respective economies have been improving for some time Investors were also reluctant to take on too much risk ahead of European election results and a presidential election in Ukraine this weekend, and because British and US markets are closed on Monday, which will dry up market liquidity.

In early trading Friday, The FTSEuroFirst 300 index of leading European shares was down 0.1 per cent at 1365 points , Germany’s DAX was flat at 9719 points and Britain’s FTSE 100 was down 0.2 per cent at 6807 points.

Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.1 per cent at 487.70 after hitting a one-year high of 488.42.

Markets were only mildly distracted by news that Thailand’s military had seized power in a bloodless coup late on Thursday, pitching the nation into a further period of uncertainty as the long drawn out political crisis shows no signs of resolution.

The Nikkei climbed 0.9 per cent as the yen remained on the back foot against the dollar.

The Japanese index has gained about 2.7 per cent so far this week and poised for its first weekly gain in five. Over the course of the week, however, investors have broadly regained appetite for risk and pared back bets they have held and profited from over the course of recent weeks.

Italian 10-year yields were last up around 17 basis points on the week, bouncing from recent multi-year lows and on track for the biggest weekly rise in a year. USTreasury debt yields slipped 1 basis point on the day to 2.54 per cent but were still up almost 5 basis points on the week following the recent slide to multi-month lows below 2.50 per cent.

The dollar traded little changed at 101.77 yen, and has gained about 0.2 per cent on the week. Though the rise is modest, it is still poised to snap a four-week losing run versus the yen.

Reuters