RTRS:Portugal tension drags euro to five-week low versus dollar
(Reuters) - The euro hit a five-week low against a broadly stronger dollar on Wednesday after rising political tension in Portugal pushed up the borrowing costs of peripheral euro zone countries.
The euro fell 0.3 percent to $1.2923, its lowest since late May.
More losses could bring it towards the mid-May trough just below $1.28, although analysts said traders may be cautious about selling the currency too aggressively before a European Central Bank decision on Thursday.
The dollar rose as investors positioned for jobs data on Friday that could add to expectations the U.S. Federal Reserve will begin to reduce monetary stimulus. The dollar index .DXY hit a five-week peak of 83.717.
"Portugal is by far the biggest focus," said Derek Halpenny, European Head of Global Currency Research at BTMU.
"For the euro this is a slow grind lower ... The euro has been fairly resilient against the dollar and the market will initially treat this with caution but it is clearly a euro negative."
On Tuesday, Portugal's prime minister refused to accept the resignation of his foreign minister in a growing political crisis. Portuguese media reported on Wednesday that two more government ministers were preparing to tender their resignation.
Portuguese bond yields soared while Portuguese equities tumbled .PSI20. Spanish and Italian bond yields also rose as traders worried that troubles in Portugal could reignite the euro zone debt crisis.
The euro fell more than one percent against the safe-haven yen to 129.01 yen on EBS trading platform.
Euro falls against the yen helped push the dollar down 0.7 percent to 99.98 yen, but analysts said a solid non-farm payrolls report on Friday would push the U.S. currency back up again. U.S. private payrolls figures due at 1215 GMT (8.15 a.m. EDT) could also give the dollar a lift.
Traders were cautious before a U.S. market holiday on Thursday that could spark volatile movements due to low volumes.
However, the dollar is expected to stay broadly supported on expectations the Fed will scale back stimulus while other central banks are more likely to ease policy.
"Most believe that the Fed is mostly likely to taper at some point in 2013, so it's kind of like 'heads I win, tails you lose,'" said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York.
The higher-yielding Australian dollar slid to a near three-year low of $0.9052 after Reserve Bank of Australia Governor Glenn Stevens said he was surprised by the resilience of the Australian dollar.
