The euro weakened versus most of its major counterparts before a report that economists said will show European growth slowed last quarter, adding to concern nations will struggle to curb budget deficits. The 17-nation currency retreated from a three-week high versus the dollar after data showed Germany’s economy grew less than analysts predicted in the second quarter. The Swiss franc rose against all of its major peers as investors flocked to the safest assets. Australia’s dollar weakened after Reserve Bank minutes showed policy makers kept interest rates unchanged on concern global economic growth will slow. “The euro’s under pressure after the German GDP numbers, which were pretty poor,” said Chris Walker, a currency strategist at UBS AG in London. “The euro-region data may come in a bit softer, suggesting slower growth.” The euro fell to $1.4386 as of 9:45 a.m. in London from $1.4445 in New York yesterday, when it climbed to $1.4477, the most since July 27. The European currency slipped 0.4 percent to 110.52 yen. The dollar was unchanged at 76.83 yen. Australia’s currency fell 0.8 percent to $1.0423. Gross domestic product in the euro area rose 0.3 percent from the first quarter, when it increased 0.8 percent, a Bloomberg News survey showed. German GDP, adjusted for seasonal effects, rose 0.1 percent from the first quarter, when it jumped a revised 1.3 percent, the Federal Statistics Office said today. Economists had forecast growth of 0.5 percent. Dutch Growth The Dutch economy grew 0.1 percent in the second quarter from the previous three months, national statistics bureau CBS said on its website today. The median estimate was for 0.3 percent growth in a Bloomberg survey. “When you’ve got low growth, debt becomes a real issue,” said Grant Turley, a senior currency strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “There’s probably more uncertainty about Europe, and that will limit rallies in the euro.” The common currency weakened before a meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel today that may result in action to contain the region’s debt crisis. Calls are growing for Merkel and Sarkozy to discuss joint borrowing or a mutual guarantee among the 17 euro states, policies that Germany and France have previously rejected. The issue is likely to come up at their press briefing scheduled for 6:30 p.m. Paris time after the talks. Budget Rules The two leaders will focus on proposals to tighten enforcement of EU budget rules and expand coordination of national economies, according to French Finance Minister Francois Baroin. “The market focus will be on the Sarkozy-Merkel meeting,” UBS’s Walker said. “There may be a vague commitment to act as quickly as possible. Unless they really do surprise the markets, that’s all we can look for.” The European Central Bank spent a record amount on government bonds last week as it began buying Italian and Spanish securities to stem the region’s debt crisis. Policy makers said yesterday they settled purchases worth 22 billion euros in the week through Aug. 12, more than the 15 billion-euro median estimate in a Bloomberg survey. ‘Unprecedented’ Support “That the ECB is showing unprecedented, albeit reluctant, support for European bond markets is encouraging” for the euro, Adam Myers, a senior foreign-exchange strategist at Credit Agricole Corporate & Investment Bank in London, wrote in a note to clients today. The franc, a traditional refuge from financial turmoil, advanced as growth concern overshadowed speculation the Swiss central bank will intervene to peg its currency to the euro. The Swiss government and the central bank held “intense” talks over a possible franc target and the measures are ready to be adopted this week, SonntagsZeitung reported on Aug. 14. The Swiss currency appreciated 0.9 percent to 1.12325 per euro, snapping a three-day loss. It strengthened to a record 1.00749 on Aug. 9. The franc rose 0.3 percent to 78.16 centimes per dollar. A report today is forecast to show the U.S. housing market remains weak. The Commerce Department will say housing starts dropped 4.6 percent to a 600,000 annual pace in July, according to the median forecast of economists in a Bloomberg News survey. Dollar Decline The dollar has slumped 6.1 percent this year, the worst performer among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The Swiss franc is the biggest gainer at 15 percent, benefiting from investor demand for a refuge amid the euro area’s debt woes and Standard & Poor’s downgrade of the U.S. credit rating. Federal Reserve Bank of Atlanta President Dennis Lockhart said yesterday the central bank may purchase more Treasuries or alter its balance sheet if the economy were to slow further. The Fed completed $600 billion of bond purchases in June, its second round of so-called quantitative easing, or QE2. “The U.S. may need to hammer out more accommodative measures like a possible QE3 if job and housing markets remain weak,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “The trend of the weaker dollar and stronger yen is likely to continue.” The Fed said in an Aug. 9 statement that it’s prepared to use a range of policy tools to boost the economy, including keeping its benchmark rate near zero through mid-2013. The so-called Aussie weakened against all but one of its 16 major counterparts after central-bank minutes said “downside risks to demand had probably increased, as a result of the acute uncertainty in global financial markets.” Reserve Bank Governor Glenn Stevens held the overnight cash rate target at 4.75 percent for a record eighth meeting Aug. 2. Growth in China, Australia’s largest trading partner, is slowing significantly, according to the New York-based Conference Board. A leading index for China rose 1 percent in June to 158.9 after a 0.6 percent gain in May, the group said on its website. To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

Source