By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) — The euro stayed weak against the dollar and the yen Monday as heightened worries about a Greek default and Standard & Poor’s downgrade of euro-zone credit ratings pressured the common currency ahead of a French debt auction later in the day.
The euro EURUSD +0.04% was buying $1.2645 during Asian trading hours on Monday, compared with $1.2677 in late North American trade on Friday.
The ICE dollar index DXY +0.15% , which measures the U.S. currency’s performance against a basket of six major global units, climbed to 81.57 from 81.459.
U.S. markets are closed on Monday for a holiday.
“We think investors should be short the [euro] now and we are concerned that Friday’s mass downgrades of Eurozone countries by S&P is not fully priced yet, despite the euro falling to new sixteen-month lows around $1.2625,” Mansoor Mohi-uddin, head of foreign exchange strategy at UBS Macro Research, wrote in a report.
The euro dropped more than 1% against the U.S. dollar on Friday after S&P stripped France and Austria of their coveted AAA sovereign credit ratings, downgrading them by one notch to AA+. The ratings agency also cut ratings on Italy, Spain and Portugal by two notches. Read full story on the ratings actions.
Some analysts said the initial impact from the rating changes could be felt Monday, when France is poised to sell €8.7 billion of debt. Germany and the European Financial Stability Facility — the euro-zone’s temporary bailout fund — are also set to auction debt later this week.
Also hitting investor sentiment was news that talks between private creditors and Greece on a voluntary restructuring of government borrowings broke down on Friday. Read full story on the unsuccessful talks.
“The combination of Greek talks stalling, S&P’s actions and a U.S. holiday isn’t a recipe for a calm Monday,” said Kit Juckes, chief currency strategist at Societe Generale.
“But while I think a weaker euro is an inevitable consequence of this move — and indeed, I’m not sure [European Central Bank President Mario] Draghi sees that as a bad thing — I don’t think this means the single currency system is in more danger of collapse,” Juckes added.
The Japanese yen also continued to strengthen against the euro, with the common currency EURJPY -0.28% changing hands at ÂĄ97.13, compared to around ÂĄ97.39 late in North America on Friday. The dollar USDJPY -0.32% was trading at ÂĄ76.80 from ÂĄ76.90.
The sharp rally in the yen since Friday’s close in Tokyo prompted worries in Japan, where finance minister Jun Azumi Monday described the yen’s gains against the euro as “a bit rapid.” Azumi, however, said he wasn’t so concerned about the impact on Japanese companies, since their fundamentals were sound, according to a Dow Jones Newswires report.
Among other major currencies, the British pound GBPUSD +0.13% was changing hands for $1.5301 versus $1.5316.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.
