European session review: EUR mostly higher amid improved risk appetite

EUR strengthened against most of its major rivals in the European session on Tuesday as bets that massive U.S. fiscal stimulus and accelerating vaccine rollouts will power global economic growth this year supported market sentiment.

Additional support for the single currency was provided by a better-than-forecast reading of German business morale and data showing a slightly better reading for Q4 GDP.

Germany's latest ZEW sentiment survey showed that German investor confidence improved unexpectedly in February. According to the report, the ZEW Indicator of Economic Sentiment increased to 71.2 in February from 61.8 in the previous month. Economists had forecast the indicator would drop to 59.6. This was the highest reading since September as the markets were confident that the German economy would be back on the growth track within the next six months. Meanwhile, the assessment of the economic situation worsened slightly, falling to -67.2 from -66.4 a month ago. Economists had expected the indicator to edge down to -67.0.

Eurostat's report revealed that the Eurozone's economy contracted slightly less than initially estimated in the fourth quarter of 2020. According to the report, Eurozone GDP fell by 0.6 percent q/q in the three months to December 2020, instead of the -0.7 percent q/q estimated previously. The latest reading followed a record 12.4 percent q/q growth in the third quarter and an unprecedented 11.7 percent q/q decline in the second quarter. On a yearly basis, GDP fell 5 percent, less than an initial estimate of a 5.1 percent drop, but higher than a 4.3 percent contraction in the third quarter.

Investors also paid attention to the comments by the EU's economics commissioner Paolo Gentiloni, who said that the block would decide how fiscal support would be tapered in a coordinated manner by the summer.