The euro fell to a two-week low against the dollar on Thursday after a survey showed that German corporate sentiment deteriorated more than expected in April, heightening concerns that cracks in the eurozone’s largest economy were starting to show.

The Ifo German business climate index fell from 104.80 in March to 102.40 in April, its weakest level since January 2006 and well below forecasts for a reading of 104.3.

The survey fuelled fears that problems emanating from the financial sector were set to spill over into the country’s real economy.

Analysts said the data could be pivotal for the foreign exchange markets, possibly heralding the end of the single currency’s upwards trend.

Late in New York, the euro, which this week hit a record high of $1.6018 against the dollar, fell 1.3 per cent to $1.5680 against the greenback, lost 0.4 per cent to Y163.55 against the yen and dropped 0.9 per cent to £0.7947 against the pound.

Recent German data has been resilient while other economies in the eurozone have deteriorated.

Growth in continental Europe has been a bright spot for the global economy amid the credit crisis.

This has prompted the European Central Bank, unlike the authorities in the US and the UK, to maintain a hawkish monetary policy stance, refusing to cut interest rates, as it judged the risks of rising inflation to outweigh the prospect of an economic slowdown.

But Ashley Davies, of UBS, said the weakening Ifo data could ease the European Central Bank’s fears over rising inflation, opening the way for cuts in eurozone interest rates.

While the Federal Reserve was expected to deliver just one more 25 basis-point cut in US interest rates, Mr Davies said he believed the ECB would cut rates by 100 basis points once it got started.

“The point for the FX markets is that the bulk of Fed rate cuts are behind us and the bulk of ECB rate cuts lie ahead,” he said.

“Just as the pound started weakening following the Bank of England’s cutting rates from November last year, we can expect the euro to weaken in anticipation of ECB rate cuts.”

The dollar was boosted by a growing conviction that the Fed would move to a neutral monetary policy stance after lowering interest rates at its meeting at the end of this month.

An unexpectedly large fall in weekly US jobless claims also provided support.

The dollar rose 0.8 per cent to Y104.30 against the yen, rose 1.9 per cent to SFr1.0356 against the Swiss franc and climbed 0.4 per cent to $1.9730 against the pound.

The New Zealand dollar fell 0.7 per cent to $0.7887 against the dollar after the Reserve Bank of New Zealand sounded a more dovish tone than expected after it decided to leave rates on hold at 8.25 per cent.

The bank said the economy had weakened more markedly than expected but still maintained that rates should remain on hold for “a time yet” in view of short-term inflationary pressures.

Kamal Sharma at JPMorgan said he expected the RBNZ not to cut rates until the first quarter of 2009.

“Nonetheless, we retain a bias to sell the New Zealand dollar,” he said. “We view both the economic and monetary cycles to have turned and in the near-term expect the incoming data flow to remain weak.”