Euro boosted by upbeat German Ifo survey

The euro edged higher on Friday after a better-than-expected German business sentiment survey, but gains looked capped by concerns over Spain's finances and uncertainty before the first round of French presidential elections on Sunday. Spanish 10-year government bond yields flirted with the 6 percent level after a debt auction on Thursday fell short of market expectations, helping keep the euro hemmed firmly within its recent trading range between $1.30 and $1.32.
The common currency was up 0.4 percent at $1.3190, having hit a session high of $1.32066, just shy of its 55-day moving average of $1.3207. Traders cited sizeable options expiries around $1.32 that were likely to check gains. Germany's Ifo business climate index rose to 109.9 in April versus a forecast of 109.5, in the latest sign the euro zone's largest economy continued to outpace the bloc's debt-ravaged southern states and highlighting the divergences within the currency bloc.
"The Ifo surprised once again to the upside so we gained a bit of intra-day volatility but the wider ranges are still very tight," said Chris Walker, currency strategist at UBS. Concerns about Spain's deficit, banking sector and poor growth outlook have mounted in recent days, raising the possibility that Spanish yields could rise to 7 percent, an area many see as a tipping point into unaffordable borrowing costs. A firm break below $1.30 would eventually open the door to a test of the euro's 2012 low at $1.2624.
Most analysts expect the euro to remain rangebound ahead of Sunday's first round of the French vote, but financial markets are nervous that the expected eventual winner, Socialist Francois Hollande, may have a looser grip on government finances than current President Nicolas Sarkozy. "There's plenty ahead to keep investors on edge and notwithstanding the recent stability in euro/dollar, we still see a breach of the $1.3000 level over the coming weeks," said Derek Halpenny, European Head of Global Currency Research at Bank of Tokyo Mitsubishi, London. The yen hovered close to its lowest levels in 10 days against the dollar after Governor Masaaki Shirakawa said the BoJ would continue powerful monetary easing until a 1 percent inflation target is in sight.
His words reinforced expectations the BoJ will ease policy further at its April 27 meeting. The dollar stood at 81.77 yen, bringing its April 10 peak of 81.87 yen into focus. The euro hit a two-week high of 107.962 yen, up 0.5 percent on the day and staging a strong comeback from Monday's trough of 104.63 yen. Sterling hit a 5-month high against the dollar of $1.6122 after strong UK retail sales data doused any faint expectations of more monetary stimulus by the Bank of England.