The euro weakened against the majority of its most-traded counterparts after German and French leaders rejected the issuance of bonds by the European currency region to contain its sovereign-debt crisis. The 17-nation currency briefly pared losses after French President Nicolas Sarkozy said France and Germany are working on “ambitious” joint proposals to defend it. The Swiss franc erased gains against the dollar and euro after U.S. industrial production climbed, curbing the currency’s haven appeal. The pound rose versus the dollar after U.K. inflation accelerated. “The initial euphoria around the comments has waned as it’s become clear that there’s not going to be a euro bond,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “There’s a fair amount of disappointment around it, and that’s why the euro has taken a hit.” The euro declined 0.3 percent to $1.4407 at 5 p.m. in New York, from $1.4445 yesterday, when it reached $1.4477, the highest level since July 27. The shared currency fell 0.3 percent to 110.65 yen. The dollar was little changed at 76.80 yen, compared with 76.83 yen yesterday. Germany and France share an “absolute determination” to defend the euro, Sarkozy told reporters in Paris today after talks with German Chancellor Angela Merkel. The two countries will propose a financial transaction tax in September, he said. Final Step While euro-region bonds may be “imaginable one day,” they can only be the final step in the process of European integration, Sarkozy said. “I don’t think Europe has used its last resource yet, and I don’t think we can resolve the problem with a single big-bang policy,” Merkel told reporters. The two leaders set out joint proposals to strengthen the shared currency, including plans for all euro-area states to demonstrate a “verifiable commitment” to anchoring debt limits in national law and a “euro council” to be headed by European Union President Herman van Rompuy. “It’s an incremental step toward some kind of pan-European fiscal agency, but what is it going to do?” said Franulovich of Westpac. “It’s not going to have central taxing power or central borrowing authority, so it’s kind of an empty shell.” The euro weakened earlier as the region’s gross domestic product expanded in the first quarter the least since 2009, 0.2 percent, the European Union’s statistics office in Luxembourg said. Economists in a Bloomberg survey forecast an increase of 0.3 percent. German Stagnation German GDP, adjusted for seasonal effects, grew 0.1 percent from the first quarter, when it jumped a revised 1.3 percent, the Federal Statistics Office said. 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 ($32 billion) in the week through Aug. 12. The ECB earlier this year boosted its key interest rate to 1.5 percent to curb inflation. “Now we are at the point where those debt concerns are just as strong, and at the same time ECB tightening has been priced out and now it appears that growth momentum has slowed significantly,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “It is removing an important pillar of support for the euro.” Swiss Reversal The Swiss franc weakened 1.5 percent to 79.62 centimes per dollar, after appreciating as much as 0.9 percent. It fell 1.2 percent to 1.1465 per euro, its fourth straight daily loss, after earlier climbing 1.5 percent to 1.1165. Switzerland’s central bank may introduce a currency peg with a lower limit of slightly above 1.10 versus the euro before gradually increasing it, SonntagsZeitung reported Aug. 14, citing people familiar with the situation. Policy makers are battling to curb gains that have seen the franc surge 13 percent this year against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Currency Indexes. Sterling rose against all of its 16 most-traded counterparts after the U.K.’s Office for National Statistics said consumer-price inflation quickened to an annual 4.4 percent in July, from 4.2 percent the previous month. That reduced the likelihood the central bank will inject further monetary stimulus into the economy. Economists had predicted 4.3 percent. The pound gained 0.7 percent to 87.55 pence per euro and rose 0.4 percent to $1.6456. Aussie, Rand The Australian dollar and South African rand were the worst performers against the greenback after the Swiss franc. The Aussie fell 0.2 percent to $1.0486, and the rand dropped 1.2 percent to 7.1539 per dollar. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, advanced for the first time in three days. It rose 0.2 percent to 73.976. U.S. industrial production increased 0.9 percent in July, after a 0.4 percent gain the prior month, Federal Reserve data showed today. The median estimate was for a 0.5 percent rise. Housing starts in the U.S. fell 1.5 percent to a 604,000 annual rate, in line with the median forecast in a Bloomberg News survey, Commerce Department figures showed. Fitch Ratings affirmed its AAA credit rating for the U.S. It said the outlook is stable. To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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