LONDON: The euro dipped on Tuesday, retreating from a three-week high versus the dollar, after weak German and euro zone 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.
Euro zone GDP data showed the economy grew by just 0.2 percent over the same period, adding to pessimism about the region, which is already struggling with a mounting sovereign debt crisis.
Market focus is now on a Franco-German summit at which President Nicolas Sarkozy and Chancellor Angela Merkel will discuss potential solutions to the region's debt crisis.
The two leaders will meet in Paris from 1400 GMT this afternoon 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.
"The GDP data shows the euro zone economy is slowing very sharply. It's not just a peripheral problem any more, it's spreading to the core," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
"Given the escalating debt crisis in Europe there's a pressing need for a more effective solution to be put forward but they cannot solve the crisis between just France and Germany. Nothing of any significance will be agreed on today."
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.
The euro was last down 0.4 percent versus the dollar at $1.4392 , with support near its 100-day moving average at $1.4353. Sell-stops are cited below $1.4320 while on the topside there is talk of option barriers at $1.45.
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.
SWISS UNCERTAINTY
The euro earlier fell more than 1 percent to 1.1178 francs after the German GDP data, giving back some of the gains made on Monday, when it surged roughly 2.3 percent.
It was last trading down 0.8 percent on the day at 1.1238 francs. Earlier, the Swiss National Bank declined comment on market talk that it was checking rates in the forward market.
The Swiss franc had slid against the dollar and the euro on Monday on speculation the SNB may soon take drastic measures to curb gains in the currency by setting a cap on the Swiss currency and pegging it to the euro.
Analysts said the SNB was likely to take further steps to dampen the franc, as they have done in the past, but the authorities would struggle to stem the tide of safe haven flows as investors sought refuge from the euro zone crisis.
"People are buying the Swiss franc because they are looking at the euro zone and do not know what is going on," said Simon Derrick, head of currency research at Bank of New York Mellon.
The dollar fell 0.3 percent against the Swiss franc to 0.7817 francs, 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 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 76.77 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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