The euro firmed back above the 1.20 usd mark after another encouraging business survey in Germany, the euro zone's largest economy. The Ifo Institute said its business climate index rose to 99.6 in December from 97.8 in November and expectations of a more modest increase to 98.1. Meanwhile, the December business assessment index rose to 99.6 from 97.8 in November while the business expectations index rose to 99.6 from a revised 97.8 in November. Analysts said the strength in the survey has reinforced expectations that the European Central Bank will raise the cost of borrowing in the 12-nation single currency zone on a gradual basis over the coming months. The ECB raised its key refi rate a quarter point to 2.25 pct earlier this month, its first increase in over five years. "The strong showing of this survey will undoubtedly make the Bundesbank contingent at the ECB more twitchy about the low level of interest rates, particularly given the ongoing excessive growth in money supply and lending," said Daragh Maher, senior FX strategist at CALYON. He added that it will be interesting to see if Jean-Claude Trichet, the president of the ECB, is still determined to rule out a series of rate hikes when he addresses a banking conference. "In the meantime, this will support the euro and put interest rate futures under some downward pressure," said Maher. Just as the ECB appears to be on a path of monetary tightening the US Federal Reserve appears to be paving the way to a halt in its rate-hiking cycle. On Tuesday, the Fed lifted the benchmark rate by a quarter point to 4.25 pct but omitted to say in its accompanying statement that monetary policy remains accommodative. The softer rhetoric was taken to mean that the rate hiking cycle in the US may be nearing its end -- a factor that weighed on the dollar. Analysts though cautioned that it doesn't mean the Fed won't continue to raise interest rates steadily over the coming months, especially if the US activity data continues to remain buoyant and core inflationary pressures mount. "Whether the dollar correction turns into a full-scale rout depends on US data," said Ian Stannard, currency strategist at BNP Paribas. "Any suggest that a peak in interest rates or a slowing economy will increase the risk of this scenario materialising," he added. The dollar has been buoyed for most of this year, following a three-year downturn, particularly against the euro, by a growing focus on interest rate developments between the US and the euro zone. Over the previous three years, structural considerations were at the fore. Those structural concerns were eased somewhat yesterday by the news that the US attracted more capital inflows than it required to finance to its swelling trade gap. The Treasury reported that capital flows into the US rose to a record 106.8 bln usd in October, led by private investors' purchases of securities. This was the fifth month in a row that inflows surpassed expectations and more than covered the 69 bln trade gap recorded during the month.