FOREX-Euro rises towards $1.10, bolstered by robust German IFO survey

* Dollar index slips towards previous day’s two-week low

* Chicago Fed’s Evans’ dovish comments weigh on dollar

By Anirban Nag

LONDON, March 25 (Reuters) – The euro climbed towards $ 1.10 against the dollar on Wednesday and gained against most major currencies, helped by a robust survey of German business morale that added to signs that an economic recovery in the euro zone is strengthening.

But with the ECB’s 1.1 trillion euro asset purchase programme under way, short-dated euro zone bond yields were likely to be capped and keep gains in the euro limited, traders said.

The German IFO indicator, based on a monthly survey of some 7,000 firms, climbed to 107.9 in March from 106.8 in February, the strongest reading since July 2014 and higher than the Reuters consensus forecast for 107.3.

That followed an encouraging ZEW survey last week a strong German PMI data on Tuesday, when regional business surveys were also robust, with the eurozone composite flash Purchasing Managers’ Index (PMI) jumping to a near four-year high.

The euro was up 0.5 percent at $ 1.0993, having witnessed huge swings in the past week and still well clear of a 12-year trough of $ 1.0457 set on March 16. Euro gains against the dollar have come mainly since the Federal Reserve signalled a more cautious outlook for U.S. growth.

“While the German data is encouraging, I don’t think it changes much for the euro,” said Peter Kinsella, currency strategist at Commerzbank. “We are only in the third week of ECB money-printing and while the euro may move higher a bit on the data, I doubt those gains will be sustained.”

Investors have cut long dollar positions after the Fed took a dovish tone on interest rates last week, pushing the currency off multi-year highs. Chicago Fed President Charles Evans said on Wednesday that there was no compelling reason for the central bank to tighten and it should wait until 2016 to raise rates.

The dollar index lost 0.4 percent to trade at 96.781. On Tuesday it set a two-week low of 96.387, down roughly 4 percent from a near 12-year high of 100.39 struck in mid-March.

U.S. data on Tuesday was modestly dollar-friendly, with an uptick in underlying inflation likely to support the view that the Fed will raise rates this year. A durable goods orders report is due later in the day and if it disappoints, the dollar could lose some ground.

“Markets are still feeling the effects of the Fed stance from last week and a lot of long dollar positions are being flushed out,” said Ian Gunner, portfolio manager at Altana Hard Currency Fund. “Whether this develops into a meaningful trend depends on forthcoming U.S. data.” (editing by John Stonestreet)

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