Euro slides on Europe economy concerns

By AFP

July 15, 2010 Updated Jun 15, 2009 at 7:01 AM CDT

The euro fell against the dollar on Monday after a report that Germany's credit conditions are worsening, while pressure mounts on Europe's leaders to reveal the viability of crisis-hit banks.

In late morning London trading, the European single currency dropped to 1.3879 dollars from 1.4021 dollars in New York late on Friday.

Against the Japanese currency, the dollar dipped to 98.25 yen from 98.40 yen on Friday.

The single European currency was hit as fresh worries mounted over recovery prospects in the 16-member eurozone, dealers said.

Britain's Telegraph newspaper at the weekend quoted a top German industry group official as saying that a deepening credit crunch in Germany was threatening to slam the brakes on an economic recovery there.

Meanwhile official EU data published on Monday showed a record 1.2 million people lost their jobs across the 16 euro countries in the first three months of the year.

The figure, up sharply from 526,000 in the last quarter of 2008, marked the biggest jump in lost jobs on records at the Eurostat data agency going back to 1995.

The "data and survey evidence point to serious weakness in eurozone labour markets in the second quarter," said IHS Global Insight analyst Howard Archer.

Following the unemployment figures, Investors were braced for Germany's ZEW business sentiment survey out Tuesday, which measures the confidence of financial market players.

The index is also closely watched for investors' confidence toward the broader European economy as Germany is the region's key growth engine.

Investors were also awaiting Tuesday's meeting of the world's top emerging economies -- Brazil, Russia, India and China -- which will likely discuss reducing the dollar's role as the world's reserve currency.

It comes after a meeting of G8 finance ministers at the weekend that ended in disarray because of differences among the world's richest economies over how best to handle the weak banking sector.

Britain and the United States have already carried out "stress tests" to gauge the capital requirements of their banks -- a painful exercise seen as boosting confidence in a sector at the epicentre of the global economic crisis.

But Berlin has resisted calls for tests on its banks saying they could undermine fragile economic confidence.

London meanwhile warned its European partners that their failure to clean up banks could hold back Britain's recovery.

The contentious issue was not even mentioned in a statement at the end of the G8 meeting despite it dominating on the sidelines of the talks.

"The uncomfortable truth for Europe is that, however flawed it might have been, the US stress test exercise has so far proved effective in bolstering confidence and helping banks to raise capital," said Marco Annunziata, chief economist at Italian banking giant Unicredit.

"Eurozone policymakers appeared somewhat divided against criticism that Europe has not yet undertaken a coordinated and transparent stress testing of its major financial institutions."

In trading here on Monday, the euro was changing hands at 1.3879 dollars against 1.4021 dollars late on Friday, at 136.23 yen (137.89), 0.8496 pounds (0.8515) and 1.5127 Swiss francs (1.5124).

The dollar stood at 98.25 yen (98.40) and 1.0909 Swiss francs (1.0789).

The pound was at 1.6321 dollars (1.6442).

On the London Bullion Market, the price of gold fell to 932.40 dollars an ounce from 937.25 dollars an ounce late on Friday.

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