Investing.com - The euro slid against the dollar on Tuesday after data revealed that German investor confidence declined way more than expected last month, leading investors to bet that the European Central Bank may loosen policy to stave off deflationary pressures.
In U.S. trading, EUR/USD was down 0.25% at 1.3350, up from a session low of 1.3336 and off a high of 1.3389.
The pair was likely to find support at 1.3333, last Wednesday's low, and resistance at 1.3433, Friday's high.
The euro softened after the ZEW Centre for Economic Research reported that its index of German economic sentiment dropped to 8.6 this month, down from 27.1 in July. It was the weakest reading in 20 months and came in well below economists’ forecasts of 18.2.
The current conditions Index deteriorated to a seven-month low of 44.3 from 61.8 in July, worse than expectations for a decline to 55.5.
Geopolitical tensions in Eastern Europe are apparently taking their toll on the German economy.
Recent economic reports have indicated that sanctions slapped on Russia due to its alleged meddling in the Ukraine conflict are dragging on the German economy.
Germany is Russia’s largest trading partner in Europe.
The ZEW report noted that industrial production and incoming orders suggest “markedly reduced investment activities by German firms against the backdrop of uncertain sales prospects.”
The report also indicated that economic growth in Germany will be weaker than expected in 2014.
The ZEW data softened the euro by stoking expectations that monetary policy will tighten in the U.S., U.K. at a time while the European Central Bank may decide to loosen policy further to steer the euro area away from deflationary decline.
On Thursday, euro area inflation data will publish, and uncertainty over the strength of consumer prices in Europe prompted many investors to avoid the single currency on Tuesday.
Elsewhere, the euro was down against the pound, with EUR/GBP down 0.29% at 0.7950, and down against the yen, with EUR/JPY down 0.19% at 136.46.
On Wednesday, the euro zone is to release data on industrial production.
The U.S. is to publish data on retail sales and business inventories.