LONDON (AFX) - The euro rebounded in midday trade as the effect of a softer-than-expected German Ifo index wore off, dealers said. The Ifo economic research institute said the West German business climate index fell to 89.5 in June from 90.8 in May, and was down from 100.4 in June last year.
Bank of America economist Deborah Reed said the weaker figures had already been priced in by the market before the Ifo figures were announced, noting that the euro had fallen before the figures were announced, but then stabilised.
She said the euro's trading over the last few weeks has been positive, although she remains sceptical about whether the trend can be maintained.
"Next week could be crucial for the euro, if it manages to break out of its range, then economists could revise their outlooks for the currency," she said.
Reed is looking to the euro zone's M3 and consumer price figures to bring a more significant direction for the euro.
In the meantime, the flat reading in the consumer prices for Italian cities has been a positive development. Reed expects improvements in euro zone consumer prices, showing a let up in headline inflation and steady core inflation.
She is also looking for M3 figures to deteriorate.
However, Reed noted that neither of these data would affect the ECB interest rate scenario.
Reed added that France's data will be of great importance to the euro zone.
"Which way the euro zone slips depends on what happens in France," she said, adding that recently there has been a downturn in data there.
Elsewhere, the dollar continued to strengthen after the US government's strong dollar policy was reaffirmed.
The yen continued to weaken owing to the weak economic climate in Japan, Reed said.
With repatriation flows coming through, the "situation is more bleak here than anywhere else", she said. Sterling was slightly lower. Reed said that with no major UK data due soon, parliament in recess, and no major decision concerning the new Conservative leader due until autumn, sterling should stay within a tight range next week.