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The dollar continued to find haven support as the euro came under further attack after Ireland’s financial bail-out, while Asian currencies were undermined by tensions in the Korean peninsula.
Still fearing that the problems that prompted the European Union and International Monetary Fund to bail-out Greece in the spring and Ireland this week have not yet been contained, investors sold equities across Europe and drove the euro lower.
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Stronger-than-expected eurozone puchasing managers’ data, meanwhile, only served to illustrate the two-speed economic recovery, with Germany and France powering ahead, while the periphery has yet to feel the full impact of cuts in public finances and other austerity measures
“So are Germany and France going to lift Ireland and Greece out of the doldrums?” said Marie Diron senior economic adviser to the Ernst & Young Eurozone Forecast.
“Probably not. The PMIs give yet more evidence of diverging economic conditions between a robust core and a sinking periphery, and the turmoil that the eurozone crises are causing in financial markets will have a negative impact on growth in the core countries.”
The euro fell 0.2 per cent to $1.3588 against the dollar, and was flat against the pound at £0.8533. Against the yen the euro was down 0.2 per cent to Y113.26.
The South Korean won was the worst-performing of the emerging market currencies after the country returned artillery fire with North Korea following its shelling of Yeonpyeong Island on Tuesday. Tensions between the two neighbours have escalated since the North revealed the existence of a uranium enrichment programme several days ago.
Although the won fell 2.9 per cent to Won1,158.25 versus the dollar and lost 2.8 per cent to Y13.8929 against the yen, some analysts said that if there were no further incidents in the next few days, now would be a good time to back the currency.
Brian Jackson, a strategist at Royal Bank of Canada, said: “Any spike higher in dollar/won in the next few days may represent an opportunity to enter a long won trade at more attractive levels to position for the medium-term gains we expect to see.”
The dollar was stronger across the board, rising 0.1 per cent to Y83.36 versus the yen, 0.2 per cent to $1.5930 against sterling and by 0.6 per cent to $0.9822 against the Australian dollar.
