LONDON (AFX) - The euro drifted lower as a weak German Ifo business climate index served to highlight pessimism over the euro zone's largest economy, dealers said.
At 9:35 am, the euro was at 0.8522 usd. The single currency briefly touched 0.8512 after the news but has since made up lost ground. The closely-watched index came in well below expectations at 90.9 points from 92.5 in April, confounding forecasts which were mainly in the 92.3-93.0 region.
The euro fell on the news but managed to stay on the right side of the 0.85 usd mark as the market had been bracing for a weak reading, Julian Jessop, currency analyst at Standard Chartered said.
"The 0.85 usd level has held. It is a very important technical and psychological level. A weak Ifo had been priced in," he said. Further, focus is more on the inflation numbers coming out of the various German states. The reading in the state of Hesse was mild but the news just out of Baden-Wuerttemberg, suggests that the overall German data may not necessarily signal a let up in inflationary pressure.
Should the reading in North Rhine-Westphalia match that of Baden Wuerttemberg, the euro could slide below 0.85 usd, Jessop added. Quite apart from the German data, there has been some evidence of peripheral central banks moving in the currency market - a factor that has helped the euro and keeps players alert to the possibility of intervention, Jessop said.