The Euro rises and trumps over the Sterling as the global economy recovers

The euro rose against the pound, on speculation business sentiment in Germany will point to an economic recovery in the region. The euro traded near the highest level this week versus the dollar before a report forecast to show sentiment improved this month in Europe’s biggest economy. “The slew of economic data of late suggests that the global economy is now on the mend,” said Yousuke Hosokawa, a senior currency dealer in Tokyo at Chuo Mitsui Trust & Banking Co., a unit of Japan’s seventh-largest bank. “Lower-yielding currencies like the yen and the dollar will underperform against higher-yielding ones like the euro as risk appetite improves.” The Ifo institute in Munich will say its business climate index, based on a survey of 7,000 executives, increased to 89 from 87.3 in July, according to a Bloomberg News Survey of economists. That would be the highest reading since October 2008. Ifo releases the report today. The EUR/USD is currently trading at $1.4330 as of 8:52am, London Time.

Sterling fell against the euro on Tuesday as interest rate and bond yield spreads moved against it, and lost ground against the dollar despite equities recouping earlier losses. Surprisingly strong U.S. housing and consumer confidence data fuelled a stock market recovery which lifted sterling as much as a cent from the day's low versus the dollar, but wasn't enough to fully eclipse the bearish sentiment clouding it. "We've had a cumulative build in risk appetite during the day ... but one thing that's been striking has been the powerful upswing in cable is starting to peter out, and euro/sterling is starting to trend higher," said Robert Minikin, senior currency strategist at Standard Chartered in London. The GBP/USD is currently trading at 9:20am, London Time.

Investors should wait until “later in the year” to bet on declines in the dollar, UBS AG said. “We remain cautious about the rebound in global asset markets and favor currencies such as the dollar that will benefit from a potential return of risk aversion in the near term,” Brian Kim, a strategist at UBS in Stamford, Connecticut, wrote in a report received today. “We refrain from chasing dollar weakness at the current juncture and think that long-term dollar bears are likely to get better levels to sell the dollar.”

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