By Deborah Levine and Polya Lesova, MarketWatch
NEW YORK (MarketWatch) — The euro slumped to its lowest level since January on Wednesday, falling further under $1.30, after Italy’s borrowing costs surged at a bond auction to reinforce worries about the sovereign-debt crisis.
The euro EURUSD -0.48% dropped to $1.2957 from $1.3026 in late U.S. trading Tuesday.
The dollar index DXY +0.47% , which measures the performance of the greenback against a basket of six other currencies, rose to 80.687 from 80.303 Tuesday.
The euro’s slump came after the Italian Treasury sold 3 billion euros ($3.9 billion) of five-year bonds and saw yields surge to 6.47%, the highest yield at auction since the euro’s inception.
The results of the Italian-bond auction “took negative sentiment over the cliff” and pressured the euro,” said Jane Foley, senior currency strategist at Rabobank International.
However, “we’re getting right back to the lows of the year and that’s pretty psychological,” Foley said.
For the year, the euro has fallen about 3% against the dollar.
The dollar gained Tuesday after the Federal Reserve, in its last meeting of the year, didn’t hint that it could be considering more stimulus measures, which tend to weigh on a country’s currency. Read about dollar gains, Fed.
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.
Among other major currencies, the British pound GBPUSD -0.23% slipped to $1.5428, down from $1.5480 Tuesday.
The dollar USDJPY +0.10% bought 78.14 Japanese yen, up from ÂĄ77.97 on Tuesday.
Deborah Levine is a MarketWatch reporter, based in New York.
Polya Lesova is chief of MarketWatch’s London bureau. Sarah Turner in Sydney
