(Changes byline, updates prices, adds quotes)
By Simon Falush
LONDON, March 26 (Reuters) - The euro rallied against the
dollar on Wednesday after strong European economic data dented
expectations of near-term euro zone interest rate cuts.
The headline German business sentiment Ifo index rose to
104.8 in March from 104.1, notching up its strongest reading
since last August and wrong footing the consensus forecast for a
fall to 103.4.
Euro zone industrial new orders also turned out much
stronger than expected in January while French business
sentiment reached its highest level so far this year in March,
easing concerns that the euro's strength was damaging the
European economy.
European Central Bank President Jean-Claude Trichet told the
European Parliament he sees continuing growth in gross domestic
product looking forward, but upward risk to price stability in
the medium term.
"First there was the Ifo index that was stronger than
expected, then Trichet came out sounding hawkish on price
stability reinforcing the view that the ECB is very far from
cutting rates in the hear term," said Antje Praefcke, currency
strategist at Commerzbank Corporates & Markets in Frankfurt.
The strong European numbers contrasted with Tuesday's data
releases from the United States, where consumer confidence
plunged to a 5-year low in March while home values posted a
record drop in January.
"There is no improvement in sight for the situation in the
U.S. which is negative for the dollar," Praefcke added.
By 1123 GMT, the euro was up 0.7 percent on the day at
$1.5735, having reversed earlier losses and more than a cent
above the levels seen just before the Ifo release <EUR=>.
Euribor interest rate futures turned negative after the
data. They are now pricing in only a 50 percent chance of an ECB
cut by year-end while they factored in more than two 25 basis
point moves a week ago <FEIZ8>.
The dollar also saw significant falls against other major
currencies, dropping 0.8 percent versus the yen to 99.24 yen,
below the psychologically key 100 mark <JPY=>. It also lost 0.85
percent versus the Swiss franc <CHF=>.
AILING POUND
But the greenback managed to post gains against the pound
which took a knock after Bank of England policymaker Charles
Bean said risks to sterling were to the downside.
The pound was down 0.4 percent at $1.9970 <GBP=>. The euro
rose more than 1 percent versus sterling to 78.80 pence, closing
in on an all-time high of 79.12 <EURGBP=>.
In the United States, February durable goods orders and new
home sales will take central stage.
"Expectations are for a modest number this afternoon (for
U.S. durable goods)," said CMC Markets in a note to clients.
"Any (upside) surprises here would arguably bring some
much-needed support for the dollar, but if this fails to
materialise then we risk resuming that race to the EUR/USD
levels of $1.60-1.65 that some are suggesting would put the
prospect of coordinated central bank intervention squarely in
the frame."
(Editing by David Christian-Edwards)
