The euro declined against the dollar on Tuesday as proposals by French and German leaders to stem the European debt crisis failed to bolster investor confidence in the eurozone. French President Nicolas Sarkozy and German Chancellor Angela Merkel unveiled wide-reaching plans for closer eurozone integration, including deficit limits and biannual summits, but said joint euro bonds could only be a longer-term option.
The failure of the proposals to address problems in France, the European Financial Stability Facility's lack of sufficient resources to buy debt or ways to rekindle growth all contributed to investors' disappointment, said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
"This does not seem to be a game-changer or a show-stopper," he said. "Market participants went into this summit with low expectations and they certainly met those low expectations." In late afternoon New York trade, the euro was trading at $1.4402, down 0.3 percent, with support at its 100-day moving average around $1.43511. The euro hit a nearly three-week high of $1.44779 on Monday.
Some market participants, however, cited positive notes from the plans laid out by Sarkozy and Merkel. "The ingredients must be gathered before the pie is baked, and this is exactly what France and Germany are lining up with their discussions," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.
Although the euro had earlier been buoyed on increased risk appetite after Fitch Ratings maintained the United States' AAA credit rating, with a stable outlook, dismal economic data out of Germany and the euro zone took a toll on the single currency. The Swiss franc slid against the dollar and euro in the last few sessions on speculation the Swiss National Bank may take drastic measures to curb gains in the currency by setting a cap on the franc and pegging it to the euro.
Some have speculated new measures could come as soon as Wednesday when the government meets to discuss the franc, but Switzerland's central bank may not cave in to pressure to start selling francs for euros just yet. The dollar last traded at 0.7928 franc, up 1.1 percent, while euro was at 1.1424 francs, up 0.9 percent.
Investors have been unwinding long positions in the Swiss franc as an uneasy calm overcame global markets and SNB officials openly considered additional action, helping slow the currency's rampant ascent, according to Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "However, as uncertainty about the eurozone's debt crisis increases, the franc's appeal as a safe harbour is likely to rise again, despite the SNB's best efforts to cap its gains," he said. The dollar fell 0.1 percent against the yen to 76.72 yen, near levels seen before Japan's yen-selling intervention on August 4 and hovering near a record low of 76.25 yen hit in March. The greenback earlier hit session highs after the Fitch news.
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