Early trade in New York: Euro gains on France, Germany agreement

The euro gained on Monday, boosted by a broad agreement between France and Germany for tighter control of eurozone budgets, although gains could be capped if a summit later this week disappoints market expectations. The accord hashed out between French President Nicolas Sarkozy and German Chancellor Angela Merkel called for automatic sanctions in the event a eurozone member's fiscal deficit falls below 3 percent of its gross domestic product.
The agreement will be one of the proposals to be discussed at a European Union summit later this week. Kathy Lien, director of FX research at GFT in Jersey City, however, remained unconvinced about the euro's gains. She noted that the magnitude of the currency's rally reflected scepticism about European leaders' abilities to provide a tangible solution for the region's debt crisis.
In late morning New York trading, the euro was up 0.5 percent versus the dollar at $1.34740, holding above last week's low around $1.32300 hit on November 28 and the November 25 trough of $1.32125. The euro hit session highs at $1.34869 on news of the Franco-German agreement, with stop loss orders placed around $1.35000. The dollar index, which measures the performance of the US unit against a basket of currencies, was down 0.5 percent at 78.231.