The euro remained firm after this morning's stronger-than-expected German Ifo survey, while the pound touched four-month highs against the dollar after data showed UK quarterly economic growth returned to trend in the fourth quarter. A key survey released this morning showed that Ifo's monthly index of the German business climate jumped to 102.0 in January from 99.7 in December, the highest level in five years, while the expectations index hit an 11-year high of 103.6.
Along with a solid French confidence indicator, also released this morning, today's euro zone data will cement expectations that the European Central Bank will raise interest rates in the coming months. "The data suggests a solid manufacturing and capex outlook in the months ahead and is consistent with more tightening ahead," said UBS analyst Daniel Katzive. An ECB rate hike as early as next month is unlikely, but the prospect of a move in March is "likely to keep the euro well supported" in the near term, he added. Later this afternoon, all eyes will be on the speech by ECB president Jean-Claude Trichet for further indications on when the next rate move might be. The dollar meanwhile failed to benefit much from sharp falls in oil prices, with the market remaining focused on when US interest rates will peak, while US existing home sales data this afternoon could attract some attention.
Elsewhere, the pound was firmer and touched four-month highs against the dollar in the wake of data showing that UK quarterly economic growth rose back to its trend rate of 0.6 pct in the fourth quarter. This was above forecasts for a reading of 0.5 pct, while the annual growth rate at 1.7 pct was also above expectations. The minutes to this month's meeting of the Bank of England's Monetary Policy Committee were released at the same time and continued to show that only one of the nine members -- Stephen Nickell -- voted for a rate cut this month. The combination of these two releases make a rate cut in February very unlikely, analysts said. "Today's GDP data and the minutes all but rule out a move in rates in February," said Deutsche Bank's George Buckley.