Euro slips against dollar as corporate sentiment on economic recovery dips

CURRENCIES:THE EURO slipped against the dollar yesterday, stung after a gauge of German corporate sentiment fell short of market expectations, suggesting that any recovery in the euro zone's biggest economy would take more time.

The yen stayed under selling pressure after reports that North Korea had conducted a nuclear test, followed by test-firings of three short-range missiles. The event had been seen as a negative factor for the currency, given Japans geographical proximity to Pyongyang.

In thin trade due to market holidays in the UK and the United States, the euro slipped to the day’s low after the Munich-based Ifo think tanks business climate index rose to 84.2 in May from 83.7 in April.

Despite the rise, the reading was lower than expectations for an 85.0 reading, while current conditions slumped to their lowest level since Germany’s reunification in 1990.

Losses in the euro were limited, however, as many in the market continue to focus on the dollars short-term decline on the back of fiscal concerns given recent speculation that the United States may be vulnerable to a credit ratings adjustment.

Analysts said that the euro’s slide suggested that traders may be getting less optimistic that the global economy is beginning to recover significantly.

This view had improved risk demand in past weeks and propelled the single European currency to its highest level against the dollar in nearly five months last week.

The business climate index rose for the second consecutive month, which Klawitter noted was an improvement, but he added that bigger rises in expectations in past months while current conditions deteriorate was evidence that people may be more confident of a recovery than perhaps they should be. “Overall, the bottom may have been reached, but it remains questionable whether there is any basis for optimism that will move into a normal recovery phase,” he said.

The dollar inched up 0.1 per cent against a basket of currencies but held near a five-month low hit last week when concern that US government debt may lose its AAA rating prompted investors to sell the world’s reserve currency.

The dollar rose 0.3 percent to 95.10 yen, trading near the day’s high about 95.20 yen hit earlier in the day on the North Korea news.

European market participants said that the news was having limited impact. – (Reuters)