NEW YORK—The euro dropped to a new one-year low Wednesday as a ratings agency downgrade of Spain fanned fears that a sovereign-debt crisis was spreading across the euro-zone periphery.
The euro dropped to $1.3129, its lowest level since April 2009, on Standard & Poor's downgrade of Spain's long-term debt, which was accompanied by a negative outlook. The downgrade follows S&P's slicing of the ratings of Greece and Portugal on Tuesday, which sent the euro plummeting.
"The deep-seated nature [of the euro-zone sovereign-debt crisis] is only now being realized by the markets," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J, "We're looking at a potential funding crisis" of government and corporate debt in the euro-zone periphery "in the not-too-distant future."
Other ratings agencies are likely to follow with additional downgrades, analysts said, which will send the euro even lower.
In midday trade, the euro was at $1.3141 from $1.3176 late Tuesday. The dollar was at 94.07 yen from 93.17 yen, while the euro was at 123.62 yen from 122.76 yen. The U.K. pound was at $1.5159 from $1.5249. The dollar was at 1.0898 Swiss francs from 1.0877 francs.
S&P lowered its long-term credit rating for Spain to double-A from double-A-plus, saying the country would grow more slowly than had been anticipated.
The euro had rebounded modestly overnight on a trickle of positive comments from euro-zone officials on possible progress being made on a bailout package for cash-strapped Greece.
Investors have been awaiting details on the European Union-International Monetary Fund plan.
But as the fire of the sovereign-debt crisis spreads, Mr. Dolan said: "The Greek aid package is like a Band-aid on a broken leg."
With a sustained break below $1.3265, a BNP Paribas technical analysis said the common currency could break below $1.30 and fall all the way to $1.2995 in the near term.
