The euro halted its early European session downtrend against other major currencies on Tuesday as the German economic confidence rose sharply in January to the highest level since May 2010.
Financial market experts see the economic perspectives for the euro-zone's largest economy are brightening up on a six months' time horizon, a survey by the Center for European Economic Research showed today.
The ZEW indicator of economic sentiment surged 24.6 points to 31.5 in January, far exceeded the expected reading of 12. At the same time, the assessment of the current economic situation improved slightly by 1.4 points to 7.1.
"The financial market experts seem to expect that the positive sentiment on the financial markets may soon result in companies realizing investments that had been postponed earlier on," says ZEW President Wolfgang Franz.
Economic expectations for the Eurozone increased significantly by 23.6 points to 31.2 points in January.
Meanwhile, Spain sold 6-month bills of EUR 2.8 billion for a yield of 0.888 percent against a maximum target of EUR 2.5 billion. Yields eased considerably from 1.609 percent in December.
Eurozone finance ministers on Monday agreed to release the next tranche of EUR 9.2 billion bailout fund for Greece. The amount is expected to use for further recapitalization of struggling Greek banks and cover the government's budget.
At the same time, Dutch Finance Minister Jeroen Dijsselbloem has been elected as the head of the Eurogroup, replacing Luxembourg Prime Minister Jean-Claude Juncker, who held the post for the past eight years.
After being elected to the post, Dijsselbloem said the role of Eurogroup in the preparation and follow-up of euro area summits needs to be developed further. He also promised to examine the need to update the Eurogroup working methods as the current methods date back to 2008.
The big news today in the financial market was the Bank of Japan's decision to double its inflation target to 2 percent, as sought by Prime Minister Shinzo Abe, in a bid to end deflation.
The central bank also announced open-ended asset purchases from next year. The central bank will make monthly asset purchases of JPY 13 trillion, including JPY 2 trillion in Japanese government bonds and JPY 10 trillion in Treasury Bills. As a result, the total size of the asset purchase program will be increased by JPY 10 trillion in 2014, which will be maintained thereafter.
The bank said it "will pursue aggressive monetary easing, aiming to achieve the above-mentioned price stability target, through a virtually zero interest rate policy and purchases of financial assets, as long as the Bank judges it appropriate to continue with each policy measure respectively."
The Policy Board voted unanimously to keep the benchmark uncollateralized overnight call rate at around 0-0.1 percent.
The U.K. budget deficit widened to GBP 15.4 billion in December from GBP 14.8 billion in the prior year, the Office for National Statistics said today. The expected deficit for December was GBP 15.2 billion.
Spending increased 5.4 percent from the same period of last year and government revenues climbed 3.6 percent in December.
During April to December, public sector net borrowing, excluding interventions, increased to GBP 106.5 billion from GBP 99.3 billion seen in the previous year.
The euro reversed direction against the yen from a 5-day low of 117.35, snapping back to as high as 118.73 around 6:20 am ET. If the pair maintains the recovery, likely target level is seen at 120.00/30.
The common currency also recouped some of its losses against the Swiss franc following the German data, having advanced from 6-day low of 1.2342 hit earlier in the session. The euro-franc pair rose as high as 1.2407 before hovering around the 1.24 level by 6:10 am ET.
The single currency appreciated 0.7 percent to reach a high of 1.3362 against the dollar around 6:00 am ET from a 6-day low of 1.3268 hit earlier in the session.
The euro-greenback pair is approaching its Asian session's 4-day high of 1.3372 and a move above this mark could help the pair revisit the key 1.34 level after a gap of more than a week.
The European shared currency also gained ground against the pound from a session's low of 0.8391, rising as much as 40-pips to 0.8431 around 6:00 am ET. The next barrier for the currency cross is seen its Asian session's 11-month high of 0.8442.
Looking ahead, the U.S. existing home sales for December and the Richmond Federal Reserve's manufacturing index for January are expected to influence the market in the North American session.
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