Euro drifted below the 1.2100 level in early European trade today in the wake of disappointing flash PMI data out of Germany and France. German Manufacturing PMI missed its mark hitting 43.3 versus 45.3 eyed while Services PMI slipped below the key 50 boom/bust level to 49.7. In France the data was bit more mixed with Services improving to 50.2 from 47.9 the period prior but Manufacturing continued to contract to 43.6 from 45.6 forecast.

The German PMI results were the worst in three years indicating that the slowdown in economic activity has now spilled over to Europe’s largest economy and will likely push its GDP into negative territory in the second half of the year. With Germany seen as the sole anchor of EZ growth, the news proved disappointing to currency markets and the single currency declined to 1.2100 on the back of the data.

In addition to the weak PMI results, the euro was also pressured by the rising Spanish 10 year bond yields which reached yet another euro record high today of 7.569%. The market will now focus on today’s meeting between Spanish and German finance ministers as they grapple with the deteriorating credit market conditions in Spain. However, as many analysts have pointed out, yesterday’s downgrade of Germany by Moody’s may make the German’s even more cautious about expanding their credit which in turn could put more downward pressure on the euro.