The euro lost ground on Thursday as worries over European government debt resurfaced and weak eurozone industrial production raised further concerns over the health of the global economy. The dollar and the yen surged higher across the board on Wednesday as fears over global growth prompted by a downgrade of the Federal Reserve’s assessment of the US economy stoked haven demand for both currencies. But it was the euro that bore the brunt of the selling, dropping more than 2.5 per cent against the dollar as fears over the credit problems of countries on the periphery of the eurozone returned. The single currency suffered as the spreads on the yield of Greek, Irish, Spanish and Portuguese government bonds over their German equivalent all widened and the cost of insuring against their governments defaulting on their debts rose. Neil Mellor at Bank of New York Mellon said it seemed that the negative implications for the export-orientated eurozone implied by the Fed’s gloomy assessment of the economy had stirred simmering tensions in the region’s debt market. He said it was possible that the rally in the euro that pushed the single currency to a three-month high of $1.3333 against the dollar last week might have run its course. Mr Mellor said there were clearly issues to be resolved as far as the eurozone’s debt problems were concerned. “In view of the profound impact such concerns had over first half of the year, it would be remiss to ignore the possibility that we have seen the peak in the euro against the dollar for the time being,” he said. The euro fell further on Thursday, losing 0.3 per cent to $1.2810 against the dollar as a surprise drop in eurozone industrial production in June heaped further pressure on the single currency. Meanwhile, the dollar was relatively stable after posting strong gains in the previous session. The dollar gained 0.3 per cent to $1.5600 against the pound, eased 0.4 per cent to SFr1.0559 against the Swiss franc and was flat at $0.8939 against the Australian dollar. Elsewhere, the yen held close to a 15-year high against the dollar as speculation over possible intervention from the Japanese authorities to stem the strength of its currency intensified. The yen hit a high of Y84.71 against the dollar on Wednesday as rising global risk aversion boosted haven demand for the Japanese currency and falling US Treasury yields discouraged yield-hungry Japanese investors from pushing capital abroad. The yen endured a volatile session on Thursday, however, as news emerged that the Bank of Japan had called market participants to check exchange rates. The BoJ said this was “normal market vigilance”, but nevertheless it added to nervousness in the market, traders said. The yen fell to a low of Y85.82 against the dollar after Naoto Kan, Japan’s prime minister, called the recent yen appreciation “rough”. But the yen strengthened, to stand down just 0.1 per cent at Y85.37 against the dollar after Yoshihiko Noda, Japan’s finance minister, declined to comment directly on the prospect of intervention at an unscheduled press conference. Copyright The Financial Times Limited 2010. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

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