MW: Euro hits fresh annual low amid bailout worries
NEW YORK (MarketWatch) -- Currency traders remained less than impressed Tuesday with the expected bailout of Greece, pushing the euro to a fresh one-year low versus the dollar amid worries that Portugal and Spain may be heading towards similar funding difficulties.
Analysts also noted concerns about Greece's ability to fulfill its promises of austerity and the potential political fallout in Germany.
"A certain degree of skepticism continues to weigh on the euro, said strategists at Brown Brothers Harriman. Investors "recognize that even if the package for Greece does the trick, a lower euro is still the likely consequence."
The single currency (CUR_EURUSD 1.3054, -0.0133, -1.0086%) fell to $1.3068, down from $1.3207 in late North American trading Monday. It fell as low as $1.3059 in intraday trading, according to FactSet. That's below the previous low at $1.3114, according to trading platform EBS.
The dollar index (DXY 83.13, +0.86, +1.04%) , which tracks the greenback against a basket of six major currencies, rose to 83.018, up from 82.316 late Monday.
The greenback was down slightly versus the Japanese yen , trading at 94.53 versus 94.64 late Monday.
Fitch Ratings and Moody's Investors Service moved to dispel market rumors of an impending downgrade for Spain saying they both maintain their AAA ratings and stable outlooks for the country's sovereign debt. Read about Spain's ratings.
That keeps Spain's rating very different than, say, Greece, which was downgraded to junk status last week. Greece and Portugal, also in the market's crosshairs, are also much smaller economies than Spain.
For Spain, "a downgrade is a matter of time," Brown Brothers strategists said. Although Spain's "macro-fundamental condition is different, the similarity lies in the funding requirements and the lack of a truly competitive economy."
The worries follow the 110 billion euro ($145 billion) bailout of Greece finalized over the weekend with the European Union and the International Monetary Fund.
Parliaments of Greece's euro-zone partners must approve the release of funds. That puts Germany in the spotlight, where a vote is expected on May 7, just two days ahead of crucial local elections in North Rhine Westphalia. The Greek bailout remains very unpopular in Germany.
"The euro has continued to weaken despite the weekend announcement, partly reflecting concerns about German parliamentary approval and reform resistance within Greece," said strategists at Barclays Capital. "A more important reason, in our view, is the realization that the road ahead remains very difficult and uncertain.
"Even if the first portion of the aid is disbursed smoothly over the next few weeks, we expect this to be temporary and that further euro downside is likely in the coming months," they wrote in a note.
Meanwhile, Greek civil servants began a two-day strike Tuesday to protest austerity measures. The Greek government agreed to a range of additional measures in order to secure the three-year bailout agreement. Greece separately hired Lazard to provide financial advice.
"Markets speculate that the extent of the austerity measures, while necessary, will drive Greece deeper into recession," said Michael Hewson, currency strategist at CMC Markets.
