By William L. Watts and V. Phani Kumar, MarketWatch
FRANKFURT (MarketWatch) — The euro held modest gains Tuesday after data showed Germany’s economy managed to grow slightly more than expected in the second quarter as the euro zone overall contracted.
The euro EURUSD +0.1729% moved up as high as $1.2385 but changed hands in recent action at $1.2349, just a shade higher than the $1.2341 seen in North American trading late Monday.
The shared currency initially got a boost as data showed German gross domestic product expanded at a 0.3% pace in the April-through-June period, topping forecasts for growth of 0.2%. France, the No. 2 European economy after Germany, registered a flat quarterly performance in the same period.
Overall, euro-zone GDP shrank 0.2% after a flat performance in the first three months of the year. See: Euro-zone GDP falls 0.2% in second quarter .
The euro later saw gains fade, however. The catalyst was the ZEW gauge of German investor sentiment, which dropped unexpectedly to minus 25.5 in August from minus 19.6 the previous month. Read: German Aug. ZEW gauge lowest since December.
“The flash Q2 GDP readings may have been supportive but the slide in the economic sentiment balance of the August German ZEW survey was far less so. The component has a directional bias on Ifo business sentiment, hence the deterioration in the former suggests increasing vulnerability of [German third-quarter] GDP being to the downside,” wrote Jeremy Stretch, currency strategist at CIBC in London.
“While we have seen something of a modest euro bounce to start the week, only a break above $1.2444/50 would encourage us to believe that euro gains are beyond being merely corrective,” he said.
Meanwhile, the ICE dollar index DXY -0.09% , which measures the greenback against a basket of six other major currencies, stood at 82.377, off from 82.404 on Monday.
The WSJ dollar index XX:BUXX -0.04% , which measures the greenback against a slightly larger basket than that of the ICE index, edged down to 71.51 from 71.54.
Among other major currencies Tuesday, the Japanese yen weakened, with the dollar USDJPY +0.4525% fetching ¥78.63 versus ¥78.33.
The British pound GBPUSD +0.1853% traded at $1.5702, up slightly from $1.5685, while the Australian dollar AUDUSD +0.1212% was little changed at $1.0529 vs. $1.0521.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
