By Polya Lesova and Sarah Turner, MarketWatch
LONDON (MarketWatch) — The euro slumped below the psychological level of $1.30 on Wednesday after Italy’s borrowing costs surged at a bond auction, reinforcing worries about the sovereign-debt crisis.
The euro EURUSD -0.32% dropped to $1.2987 in midday European trading on Wednesday. It was at $1.3026 in late U.S. trading Tuesday.
The slump came after the Italian Treasury sold 3 billion euros ($3.9 billion) of five-year bonds and saw yields surge to euro-era highs of 6.47%.
Jane Foley, senior currency strategist at Rabobank International, said that the results of the Italian-bond auction “took negative sentiment over the cliff” and pressured the euro.
The euro has been trading in a “relatively confined” range against the dollar this year, she noted. “We’re getting right back to the lows of the year and that’s pretty psychological,” Foley said.
The dollar index DXY +0.29% , which measures the performance of the greenback against a basket of six other currencies, rose to 80.555 from 80.303 in late U.S. trading on Tuesday.
The dollar gained against major rivals on Tuesday after the U.S. Federal Reserve didn’t hint that it could be considering more stimulus measures.
Fed Chairman Ben Bernanke “offered little in terms of new policy guidance. This leaves the U.S. dollar’s first-quarter 2012 path clear of monetary obstacles,” said Credit Agricole strategists.
“As such U.S. dollar appears poised for a stronger run higher,” they said
The U.S. currency made inroads against the European single currency on Tuesday as “news that German Chancellor Angela Merkel rejected any increase in the European Union bailout fund went down like a lead balloon — outweighing a less negative German December ZEW survey and a successful Spanish bond auction,” said the Credit Agricole strategists.
In other currency market action, the British pound GBPUSD +0.02% reached $1.5487, from $1.5480 in late trading. The dollar USDJPY +0.09% bought 78.10 yen compared with ÂĄ77.97 on Tuesday.
