Euro falls to six-month low despite signs of a recovery in Germany

The Euro plunged to a six-month low against the dollar despite a key German business survey that pointed to a recovery in Europe's largest economy.

The Ifo survey published yesterday showed German business confidence had improved for the third straight month in January. The Ifo economic research institute's survey of 7,000 German companies found them at their most optimistic about future prospects since just before the 11 September attacks on the US.

"It's the beginning phase of a recovery but you can't say from this data whether it will be a moderate recovery. It's too early at this stage," said Gernot Nerb, an Ifo economist.

Economists said the fragility of the pick-up in Germany meant that although the European Central Bank would probably keep its interest rates steady for the time being, it might decide to ease them at some point.

Separate figures showed that eurozone money supply – one of the targets used by the ECB – grew at the slowest monthly rate for a year. Sharda Dean, an economist at Merrill Lynch, said there was a "strong possibility" the ECB would cut rates in March. The financial markets brushed aside the Ifo survey to focus on the divergent forecasts for interest rates in the world's two largest economic blocs.

The euro fell as low as 85.74 cents, its lowest level since 18 July and a fall of almost a cent. It later recovered to 86.2 cents.

The latest gains followed a surge by the dollar of 2.3 per cent last week after the Federal Reserve chairman Alan Greenspan said there were signs of a US recovery. The dollar is set to rise further if data on economic growth, consumer confidence, durable goods sales, jobs and personal incomes – all due this week – paint a picture of an economic revival.