Strong recovery staged by euro

The euro pursued its sudden turnaround yesterday, rising by more than a cent to $1.0419, its highest level against the dollar for more than a month.

The recovery, which began late on Monday, was enhanced by indications that growth of the German economy could strengthen later this year.

The Ifo index of business sentiment in Germany, viewed as an important indicator of trends in the euro zone, rose sharply to 92.9 last month from 90.4 in May.

The index stands at its highest point since last September, when Germany fell into an economic slowdown as a result of recession and financial turmoil in Japan, east Asia and Russia.

Germany accounts for about a third of the euro zone's economic output. Economists said it was too soon to be certain the euro would avoid falling to parity with the dollar, an outcome that might embarrass European leaders.

However, hopes for a recovery in the currency had been raised by a remarkable surge against the dollar on Monday, when the euro rose a cent and a half in minutes.

Market participants yesterday indicated that a large euro purchase by a US investment fund may have triggered automatic buy orders.

Mr Marc Chandler, chief currency strategist at Mellon Bank in New York, said the euro's sudden rise on Monday had helped improve market sentiment towards the currency.

The improving economic outlook for Germany and the euro zone could lift it further.

The Ifo index rose in March for the first time in 10 months, only to fall back again in April. However, economists said they were more confident this time that the rise in June did not give a misleading impression.

Most significant was the fact that German business people's assessment of the business climate - one of two elements of the index - rose last month for the first time since July 1998.

Expectations for the future increased for the fourth successive month.