Euro slides vs. dollar as EU summit hopes wane

Tue May 22, 2012 11:55am EDT
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By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The euro fell against the dollar on Tuesday after two days of gains as investors pared back expectations that an informal meeting of European leaders this week would yield much progress in tackling the region's debt crisis.

However, given the market's stretched bearish positioning and oversold signals on the technical charts, the euro could see a short-term squeeze higher ahead of the European summit.

The yen, meanwhile, tumbled after Fitch downgraded Japan's ratings and although the currency posted the biggest loss versus the dollar, investors remained focused on the euro.

While there have been hopes in some quarters that Wednesday's summit may lead to agreement on measures to boost euro zone growth, investors were not confident of a breakthrough given apparent differences in opinion between Germany and France.

French President Francois Hollande is expected to push for a joint euro zone bond, a measure backed by Italy, Spain and the European Commission.

However Germany, Europe's largest economy and paymaster, has so far opposed the move and continues to champion austerity measures. A German official said on Tuesday euro bonds did not offer a solution to the region's problems.

"The string of summit meetings that have been called to address the euro crisis thus far have more often than not failed to live up to market hopes for quick and decisive action and this one will be no exception," said Shaun Osborne, chief currency strategist at TD Securities in Toronto.

In midday New York trading, the euro was down 0.6 percent against the dollar at $1.2742, though it held above last week's four-month low of $1.2642.   Continued...

An illustration picture shows Euro banknotes in Brussels November 28, 2011. REUTERS/Thierry Roge