NEW YORK (Dow Jones)--The euro was essentially level Friday after strong German economic data assuaged negative sentiment toward the common currency caused by a five-notch ratings downgrade of Irish sovereign debt.
The bright spot of German economic data took precedence over pessimistic news concerning Ireland because the Ifo represents one of the strongest signals yet that Germany's economy remains a source of strength in an otherwise beleaguered euro zone, said analysts.
Marginal gains by the euro following the German data suggested that fears about the euro zone's fiscal crisis were still a weight on the single currency, analysts said.
"Strong German data is good for the euro zone but expectations were high and the number wasn't necessarily out of the park [good]--the peripheral concerns in the euro zone are still the overarching trading theme," said Brian Kim, currency strategist at UBS in Stamford, Conn.
The Munich-based research institute Ifo said its business climate index rose to 109.9 in December--the highest level since Germany's reunification. On the flip side of that optimism, the cost of insuring euro-zone sovereign debt against default rose after Moody's Investors Service Inc. downgraded Ireland to Baa1 from Aa2.
Economically shakier nations in the zone are being forced to cut unsustainable levels of sovereign debt while the German economy is widely expected to grow 3.5% this year--about twice as much as the euro zone as a whole.
Meanwhile, declining crude oil prices weighed on the commodity-linked Canadian dollar against the U.S. dollar, analysts said.
With no significant U.S. economic data due, investors will likely remain focused on any news emerging from the euro zone Friday as a two-day European Union leaders' summit wraps up.
Friday morning, the euro was at $1.3235 from $1.3232 from late Thursday, according to EBS via CQG. The dollar was at Y84.01 from Y84.03, while the euro was at Y111.34 from Y111.20. The U.K. pound was at $1.5535 from $1.5634. The dollar was at CHF0.9612 from CHF0.9645.
The ICE Dollar Index, which tracks the U.S. currency against a trade-weighted basket of others, was at 80.045 from 80.066.
Overnight, concerns over the euro zone's common currency caused the euro to fall to a new all-time low against the Swiss franc.
The euro also fell below SEK9.0000 against the Swedish krona for the first time in four years.
Helping cause the downward pressure on the common currency, the cost of five-year sovereign credit-default swaps on Ireland sovereign debt rose 22 basis points to 585 basis points in the immediate aftermath of Moody's downgrade, according to data provider Markit.
A rise of one basis point in the cost of five-year CDS equates to a $1,000 rise in the annual cost of protecting $10 million of debt for five years. That means it costs $585,000 a year to protect $10 million of Irish bonds for five years.
Also, the U.K. pound declined by 0.6% against the dollar Friday after the Bank of England said U.K. banks face further but "manageable" bad-debt write-downs over the next years if the country's economy deteriorates and interest rates rise.
Canada Morning
The Canadian dollar was slightly lower against the U.S. dollar early Friday, as investors shifted out of North American currencies and as crude oil prices came under pressure.
The U.S. dollar was at C$1.0080, up from C$1.0059 late Thursday, according to CQG.
With no domestic data Friday, the Canadian dollar is likely to continue taking direction from the greenback.
-By Andrew J. Johnson, Dow Jones Newswires; 212-416-3092; andrewj.johnson@dowjones.com
