LONDON (AFX) - The euro continued its downward drift in midday trade still affected by the lower weighting given to European shares in the key Morgan Stanley Capital Index and ahead of a potentially weak German Ifo business climate index tomorrow.
"The MSCI re-weighting has had an impact but I think we are approaching the tail end," Kamal Sharma economist at Commerzbank said. However, while the adjustment remains negative for the euro, the net effect has not been huge. The re-allocation of assets in the fund managing world has already been taking place, he added.
Dealers also expect tomorrow's German Ifo business climate index to indicate a further decline in sentiment.
"We see it falling below last month's 93.9 mark," Sharma said, adding that in the past few months the euro has come under selling pressure ahead of the data.
There is everything to suggest that the figure will be weak, Sharma said citing soft outturns in German factory orders and industrial production.
Further, the German tax cuts this year has yet to help consumer spending while oil prices have started climbing, he added.
Elsewhere, the yen was able to shrug off the MSCI's negative re-weighting on Japanese stocks largely on the back the rally on the Nikkei.
Investors also did not react to the Bank of Japan's 'rather bearish' May bulletin.
The bank stuck to its earlier economic assessment but said that the economy continues to stay in an adjustment phase in line with sluggish corporate sector activity.
Meanwhile, the morning's UK trade and public sector borrowing data had little impact on sterling which received a small boost from its stronger MSCI weighting, dealers said.