FRANKFURT (MarketWatch) — The euro plunged versus major rivals Tuesday, finding itself under renewed pressure a day after euro-zone finance ministers pledged new steps “shortly” to help Greece and prevent the debt crisis from spreading, but took no action.
Meanwhile, Italian and Spanish government bond yields continued a sharp rise in a sign contagion has spread to the euro zone’s third- and fourth-largest economies, respectively.
“Core Europe needs to decide how much EMU [economic and monetary union] is worth and this decision needs to come quickly,” said Jane Foley, senior currency strategist at Rabobank in London. “Too much more delay and EMU could implode.”
The euro EURUSD -0.72% dropped through the $1.40 level to trade as low as $1.3836, according to FactSet Research, its lowest level in nearly four months.
In recent action, the euro changed hands at $1.3896, down from $1.4045 in late North American trading on Monday.
The euro is down 2.6% versus the dollar since Monday, according to FactSet. See real-time currency quotes and tools.
The euro continued to hit fresh all-time lows versus the safe-haven Swiss franc EURCHF -1.04% and remains down 1.1% at 1.1606 francs. Against the yen, the euro EURJPY -1.42% bought ¥110.45, down from ¥112.74 late Monday. The euro EURGBP -0.33% fell 0.4% versus the British pound to trade at 87.91 pence.
In a statement issued late Monday, euro-zone finance ministers said they stood ready “to adopt further measures that will improve the euro area’s systemic capacity to resist contagion risk” and that proposals would be “presented to ministers shortly.” . Read more about the Eurogroup’s statement.
Finance ministers from all 27 European Union nations are meeting in Brussels Tuesday.
Options include increasing the size and flexibility of the euro-zone rescue mechanism, known as the European Financial Stability Facility, and lengthening the maturities of loans and lowering interest rates for bailed out countries, the statement said.
“So while they yet again commit to further action, they still haven’t taken any action, which seems to be of crucial essence right now,” wrote strategists at KBC Bank in Brussels.
Meanwhile, Dutch Finance Minister Jan Kees de Jager told reporters in Brussels that a selective default on Greek debt can no longer be excluded, news reports said.
Attempts to come up with a plan that would see private-sector bondholders share in the cost of a second Greek bailout have been stymied by warnings from ratings agencies that proposals to roll over Greek debt would likely constitute a form of default. The European Central Bank has opposed any action that would result in default of any kind.
The euro was also undercut in earlier action after International Monetary Fund Managing Director Christine Lagarde reportedly said the institution and its European partners aren’t ready to discuss terms of a second bailout package for Greece.
“In my view, we’re not at the stage of discussing the conditions and terms, and length and volume, and nothing should be taken for granted,” Lagarde, a former French finance minister, said at a media briefing in Washington. Read more on Lagarde's Greece comments.
The dollar index DXY +0.46% , which measures the U.S. unit’s performance against a basket of six other major currencies, traded at 76.435, up from 75.941 late Monday.
But against the Japanese yen, the dollar USDJPY -0.73% slipped to ¥79.57, compared with ¥80.28 late Monday.
Currency markets had a muted reaction to the Bank of Japan’s widely expected decision to maintain its policy interest-rate range. The central bank was also more upbeat in its overall economic assessment, but it also cut its economic growth estimate for the fiscal year which began in April in a technical tweak to reflect the impact of the March 11 earthquake. Read more on Bank of Japan.
The dollar rose against the British pound GBPUSD -0.36% , which bought $1.5810 compared with $1.5901 late Monday.
The pound extended losses versus the dollar after Britain’s Office for National Statistics reported annual consumer price inflation fell back to a 4.2% pace in June from 4.5% in May. Economists had expected inflation to continue at a 4.5% rate.
The U.S. unit also rose against the Australian dollar AUDUSD -0.60% , which changed hands at $1.0563, compared with $1.0638 on Monday.
