The euro fell below $1.30 (U.S.) on Wednesday, marking an 11-month low against the U.S. dollar , on worries that the still-unresolved euro zone sovereign debt crisis is leaving little room for potential economic growth.
Also hanging over the euro is the prospect that Standard & Poor’s may cut its credit ratings on 15 of the 17 euro zone members, which would drive up borrowing costs in the open markets.
Germany and Italy managed to find enough buyers for their debt at auctions on Wednesday, but investors focused on the high yields that Rome was forced to pay – a level seen as unsustainable. At auction, the 6.47 per cent yield on Italy’s five-year bond was the highest since the euro was launched in 1999.
Last week’s European Union summit, seen as a critical meeting to reach a solution to rein in the debt crisis, failed to restore investor confidence. Concerns about a lack of unity grew after German Chancellor Angela Merkel rejected on Monday any suggestion of raising the funding limit of Europe’s future bailout fund.
“We have now seen 11 consecutive trading days of very strong and steady net selling of the euro, and the average pace has been more than twice as strong as the flows on the euro over the past year,” said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston.
“The news flow from the euro zone continues to be unrelentingly negative even after the EU summit,” Mr. Shankar added. “There’s a huge sense of disappointment and doubts whether enough was done or not, and there are continuing concerns that contagion is going to spread.”
The euro fell to $1.2944 on Reuters data, its weakest level since Jan. 11, as investors pushed the single currency through options-related barriers at $1.3005, $1.3000, and $1.2990.
It last traded at $1.2983 down 0.39 per cent. The key downside target lies around $1.2863, the 2011 low.
The euro also slipped 0.35 per cent against the yen , to 101.29 yen, after falling as low as 101.07, the lowest level since early October.
Weakness in the euro pushed the U.S. dollar to an 11-month high against a currency basket as investors sought refuge in the world’s most liquid currency. The dollar index rose as high as 80.730 and was last at 80.551, up 0.385 per cent.
The dollar also found support after the U.S. Federal Reserve on Tuesday refrained from boosting its easing measures this month.
Against the yen , the dollar rose 0.09 per cent to 78.05 and hit a 10-month peak of 0.9538 Swiss franc, a gain of near 0.80 per cent on the day.
Analysts said the next challenge facing the single currency could be a wave of cuts in the credit ratings of euro zone nations. While further downgrades have been partly priced into the market, the impact of any cuts would vary across the region.
A downgrade to France’s triple-A status could threaten the top-notch rating of Europe’s bailout fund and weigh heavily on the euro.
During the 2008 financial crisis, the euro fell to a low of around $1.2330, and in 2010, in the initial phases of the European crisis, it fell to a low near $1.1875.
Since launching on Jan. 1, 1999, the euro’s average price is $1.2048, based on the New York close according to Reuters data.
The euro has been able to hold above the average in light of the crisis and austerity budgets that will limit future economic growth because of repatriation flows by European investors, said Alessio de Longis, who runs OppenheimerFund’s Currencies Opportunities Fund.
“As that keeps exhausting its strength into Q1, that’s where we expect banks to continue with most of their deleveraging process,” Mr. de Longis said. “What we are starting to see is, actually, an ongoing outflow out of the euro zone on the part of foreign investors.
“That is likely to only continue and accelerate as Europe’s starts printing recessionary growth numbers. We believe Europe is already in a recession and most likely the numbers are going to confirm, soon, that reality,” he said.
|EUR/JPY-I Euro/Japanese Yen||142.60||
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|EUR/USD-I Euro/U.S. Dollar||1.368||
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|USD/JPY-I U.S. Dollar/Japanese Yen||104.20||
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