LONDON, Nov 20: The euro retreated against the dollar on Wednesday amid concerns about the German economy given signs of weakness in the financial sector and plans by Chancellor Gerhard Schroeder to introduce yet another new tax.

The single European currency fell to $1.0021 from 1.0031 late on Tuesday in New York.

The dollar traded at 122.38 yen, down from 122.92 earlier in the day in Tokyo, but little changed from 122.30 late on Tuesday in New York.

The euro came under pressure in the wake of a downgrade by Moody’s Investors Service of the outlook for its ratings on German insurance giant Allianz and its subsidiary Dresdner Bank to “negative” from “stable”.

We have extremely bad news coming out from euroland, said BNP Paribas currency strategist Iain Stannard

The euro didn’t really react until last night with Moody’s downgraded outlooks for Allianz and Dresdner, highlighting once again the problems of the German banking sector, he added.

Analysts said that the euro-zone unit was also being undermined by proposals unveiled earlier this week by the German government to levy a 15-percent tax on profits from sales of property and shares.

The fact that the German government is pushing ahead with tax increases, including the introduction of a 15-per cent capital gains tax, when the economy is (on) the brink of recession was certainly on investors’ minds, said Bank of Tokyo-Mitsubishi economist Derek Halpenny.

He noted that the monthly Bundesbank report released on Monday had suggested spending cuts were more appropriate than tax increases to bring the German government deficit back below 3.0 per cent of gross domestic product (GDP).

Germany is likely to remain in the picture on Thursday, when third-quarter GDP figures are scheduled to be released, with consensus economist forecasts looking for a quarterly rise of 0.3 per cent.

The good news is that the German economy should avoid slipping back into recession in the third quarter after two consecutive quarters of positive growth, predicted analysts at HSBC.

The bad news is that it will be close, they added, forecasting a quarterly rise of 0.2 per cent.

French third-quarter GDP figures are to be released on Friday, with consensus forecasts also pointing towards a 0.3-per cent quarterly rise.

The euro was changing hands at $1.0021 from 1.0031 late on Tuesday in New York, 122.64 yen (122.68), 0.6354 pounds (0.6344) and 1.4678 Swiss francs (1.4682).

The dollar was being quoted at 122.38 yen (122.30) and 1.4657 Swiss francs (1.4651).

The pound was at 1.5774 dollars (1.5800), 193.01 yen (193.28) and 2.3110 Swiss francs (2.3135).

On the London Bullion Market, the price of an ounce of gold slipped to $319.25 from 319.70 late on Tuesday. —AFP