LONDON: The euro extended losses on Tuesday, falling from a three-week high versus the dollar, after worse-than-expected German growth data sparked concerns about a slowdown and added to pressure on policymakers to act fast to address the region's debt problems.
German data showing GDP growth slowed to 0.1 percent in the second quarter, much less than a consensus forecast of 0.5 percent, pushed the single currency down more than 1 percent against the safe-haven Swiss franc.
Market players are now focused on euro zone GDP data at 0900 GMT, and a Franco-German summit in Paris this afternoon at which President Nicolas Sarkozy and Chancellor Angela Merkel will meet to discuss potential solutions to the region's debt crisis.
The two leaders will meet in Paris from 1400 GMT and a joint news conference is expected at 1600 GMT.
A focal point is whether there will be any signs of progress toward the issuance of common euro zone bonds, although officials in Paris and Berlin have said Tuesday's talks will not address that possibility.
Analysts said while the summit would be closely scrutinised, few in the market were expecting a concrete solution to a debt crisis that has spread from the euro zone's periphery to the core economies of Italy, Spain, and most recently France.
"It's very difficult to believe France and Germany are going to carve out any detail on the future of the euro zone in a meeting of this sort, other than non-specific commitments on maintaining stability," said Adam Cole, head of global FX strategy at RBC Capital Markets.
"People are not expecting too much so the impact should be limited but I think there will be a negative bias for the euro. As for the GDP data, if you take away Germany as the engine of growth, you take away one of the few positive forces that is supporting the periphery."
The euro was last down 0.4 percent versus the dollar at $1.4382 , with stop losses cited around $1.4400 accentuating its fall in the wake of the German data.
It reached a nearly three-week high of $1.4477 on Monday when reports the European Central Bank bought 22 billion euros of government debt last week soothed nervous investors, but failed to break key trendline resistance around $1.4480.
Analysts said the euro could draw support if Sarkozy and Merkel move closer towards a fiscal union, but the summit is more likely to focus on fleshing out details regarding issues such as economic governance.
"If Germany is going to eventually end up supporting a (common) euro bond it will have to be in conjunction with a very strong framework to ensure effective control of other countries' fiscal spending so that its commitment does not become open-ended," said Rob Ryan, FX strategist at BNP Paribas in Singapore.
SWISS UNCERTAINTY
The euro fell more than 1 percent to a low of 1.1178 francs after the German GDP data, giving back some of the gains it made on Monday, when it surged roughly 2.3 percent.
It was last trading down 0.9 percent on the day at 1.1225 francs, gaining marginally on market talk the Swiss National Bank was checking rates in the forward market. The SNB declined to comment.
The Swiss franc had slid against the dollar and the euro on Monday on speculation the SNB may soon take further action such as a currency peg to curb gains in the currency by setting an exchange-rate target.
The dollar fell 0.5 percent against the Swiss franc to 0.7801 franc , but remained well above a record low of 0.70676 hit last week on trading platform EBS.
Efforts by Swiss authorities to stem the Swiss franc's rise and speculation about the potential for more action have stirred talk that the yen may end up becoming the safe haven currency of choice, if market tensions flare up again.
The dollar held steady against the yen at 76.82 yen , having dropped back to levels seen before Japan's record yen-selling intervention on Aug. 4, and hovering near a record low of 76.25 yen hit in March.
COPYRIGHT REUTERS, 2011
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