European stocks jumped the most in six weeks as the euro slid and investors assessed the implications of a possible Federal Reserve interest rate increase as early as June.
The Stoxx 600 added 2.2 percent to 344.12 at the close of trading. All industry groups climbed, with insurers and banks leading. The euro has dropped close to a two-month low against the dollar amid an increasing probability of higher borrowing costs in the U.S. this year, favoring European companies that export overseas. The region’s firms generate about half their sales abroad, more than the U.S. and Japan, according to Morgan Stanley.

?Federal Reserve Bank of Philadelphia President Patrick Harker said late yesterday that he could see two to three rate increases in 2016 and that if the U.S. economy shows sufficient strength, a June raise would be appropriate. San Francisco Fed President John Williams earlier said two to three hikes this year are “about right.”

“A rise in the dollar would be a big help for European stocks,” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany. “People are testing whether the market has found a bottom, and there’s plenty of money sitting on the sidelines. Maybe investors are finally ready to get back in. I wouldn’t say we’re in a bullish market, but we’ve had pretty calm, sideways trading this month even with another Fed rate hike looking more likely.”

Eoin Treacy's view

The Eurozone has enough to worry about with having to deal with a strong currency so the Dollar’s resurgence is welcome news. This is especially true since European shares experienced a much deeper reaction than their US counterparts and have been in need of a catalyst to reignite investor interest. 

The Euro continues to pullback from the upper side of its more than yearlong range against the Dollar and a clear upward dynamic would be required to question potential for a further test of underlying trading. 

The DAX Index is back testing the region of the trend mean and a sustained move above 10200 would break the yearlong progression of lower rally highs.