Ratings worries knock euro lower vs dollar

NEW YORK - The euro fell against the US dollar on Tuesday in thin, pre-holiday trade as worries of more ratings downgrades for indebted euro zone countries prompted traders to lighten up on the currency ahead of year end.

By (Reuters)

Published: Wed 22 Dec 2010, 12:06 PM

Last updated: Mon 6 Apr 2015, 1:55 PM

The latest lurch lower came as Fitch Ratings said it could cut Greece’s foreign currency rating, wiping out overnight gains after supportive comments from China.

Analysts said they expect the euro to continue a slide toward $1.30 in the coming days.

“The euro’s inability to sustain any rebound is a clear sign that the path of least resistance right now is downward,” said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey. “If it weren’t for the thin market conditions, we’d probably be testing the $1.30 level more forcefully.”

The euro was last at $1.3090, down 0.2 percent and off a session peak above $1.32. Its reversal in New York took it to just below its 200-day moving average — $1.3097, according to Reuters data, for the second straight day.

A sustained move below that level in the days ahead would be a bearish sign, though dwindling volume made a significant decline below $1.30 unlikely before the New Year, traders said.

Dolan said a near-term short-squeeze was possible but said it would take a rebound above $1.3250, a trend line from the euro’s recent $1.35 high, to signal a reversal of trend.

The dollar was unchanged at 83.70 yen but fell 0.6 percent to 0.9587 Swiss francs.

Euro contagion fears persist

Earlier, China Vice Premier Wang Qishan said Beijing, which has invested an undisclosed portion of its $2.65 trillion reserves in the euro, had played its part to ease Europe’s plight and held out hope that a turning point was near. The comments helped the euro push above $1.32.

But the euro pared gains after Moody’s warned it may downgrade debt-ridden Portugal’s A1 rating by one or two notches after a review that will take up to three months. That reinforced worries the debt crisis would persist well into 2011.

“In the bigger picture of things, there’s no clarity from European policymakers with regards to the contagion fears in Europe and we can expect this to weigh on the euro for the remainder of the year,” said Dean Popplewell, chief strategist of FX brokerage OANDA in Toronto.

Analysts said fears persist that the debt crisis that has engulfed Greece and Ireland could put Portugal and Spain under more pressure early next year.

Spain sold 3.88 billion Euros in treasury bills relatively easily Tuesday in its last funding exercise of the year, but analysts said worries about the ability of indebted euro zone countries to service their debt will persist.

The euro fell to a lifetime low of 1.2547 Swiss francs on EBS as euro zone concerns enhanced the safe-haven status of the franc.

“Many investors are using euro/Swiss as a gauge for the concerns about the problems in the euro zone periphery. Sovereign risk is still weighing on the euro into year-end,” said Valentin Marinov, currency strategist at CitiFX.

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