German business morale unexpectedly rose in March as the impact of a new year rise in value-added tax appeared to fade.
The Munich-based Ifo research institute said today its business climate index, based on a monthly poll of 7,000 firms, rose to 107.7 from 107.0 in February, reinforcing expectations the European Central Bank would raise interest rates further.
The euro hit session highs against the dollar, and Bunds extended losses after the release of the figures.
The ECB has lifted its benchmark rate to 3.75 per cent, and analysts expect a 4 per cent rate by mid year, although financial markets are less certain due to a US economic slowdown.
The Ifo survey showed firms in Europe's largest economy were upbeat about existing business conditions and the outlook. Ifo's current conditions index rose to 112.4 from 111.6 in February. A business expectations index rose to 103.2 from 102.6.