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Forex - EUR/USD tumbles on French downgrade fears

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Forexpros - The euro tumbled against the U.S. dollar on Wednesday, extending earlier losses amid mounting fears France's sovereign debt rating could be downgraded, adding to concerns over the region's ongoing debt crisis.

EUR/USD hit 1.4162 during U.S. morning trade, the daily low; the pair subsequently consolidated at 1.4169, tumbling 1.42%.

The pair was likely to find support at 1.4054, the low of August 5 and a two-week low and short-term resistance at 1.4425, the high of August 8.

French President Nicolas Sarkozy met with Bank of France Governor Christian Noyer earlier in the day, as well as with a number of government ministers to discuss the country's economic and financial situation.

The meeting comes amid mounting fears that France's top-tier AAA credit rating could be downgraded if the euro zone sovereign debt crisis worsened.

Adding to concerns, shares in French lenders Societe Generale, BNP Paribas and Credit Agricole extended losses on the CAC 40 index, plunging 20.1%, 12.5% and 14.3% respectively, while the cost of insuring French debt against default rose to a record high.

Meanwhile, the Federal Reserve pledged on Tuesday to keep its benchmark interest rate at an all-time low, adding that it will maintain a loose monetary policy until "at least through mid-2013."

In a statement, the Fed said growth was much slower than expected and the labor market had deteriorated, underlining concerns over the U.S. economic outlook.

The Fed also indicated that it "discussed the range of policy tools available to promote a strong economic outlook recovery in a context of price stability" and said it was prepared to employ the tools "as appropriate".

Minutes of the Fed's meeting will be published on August 30 and will provide more insight into the policy debate, while Fed Chief Ben Bernanke is to speak at the central bank's annual policy retreat in Jackson Hole, Wyoming on August 26.

Elsewhere, the euro was also down against the pound, with EUR/GBP shedding 0.55% to hit 0.8761.

Earlier in the day, official data showed that U.S. wholesale inventories rose 0.6% in June, the smallest gain since November 2010, disappointing expectations for a 1.0% gain.

Later Wednesday, the country was also to produce data on the federal budget balance.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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