MW: Euro further drops below $1.25 to near 2-year low
By V. Phani Kumar and Sara Sjolin, MarketWatch
LONDON (MarketWatch) — The U.S. dollar climbed higher Wednesday as investors avoided risky assets amid incessant worries about Spain’s finances and the fallout from the European debt crisis, with the euro sliding further below the $1.25-level to close in on a two-year low.
The ICE dollar index DXY +0.16% , which gauges the greenback’s performance against a basket of six other major currencies, climbed 0.2% to 82.68 from 82.468 in North American trade Tuesday afternoon.
The euro EURUSD -0.51% , having dropped back below the $1.25 level Tuesday, extended its downhill journey on Wednesday and was changing hands 0.4% lower at $1.2436, down from $1.2493 late Tuesday.
The European shared currency came under heavy selling pressure after Egan Jones Ratings Co. on Tuesday, after the market close, downgraded the country’s debt to B from BB-minus with a negative outlook. Yields on 10-year Spanish government bonds ES:10YR_ESP +2.45% surged 22 basis points to 6.686%.
European equities also suffered, with the Stoxx Europe 600 index XX:SXXP -1.09% off 1.3% at 241.17.
Kathy Lien, director at GFT Forex, said there was “no question” the euro-dollar pair remains under pressure, and that further losses could hinge on catalysts that could come from a variety of “serious and realistic risks.”
These risks include a rise in the yield on Spanish 10-year bonds above 7%. Spanish bond yields move sharply higher
“Despite the recent decline in the [euro], inflationary pressures in the euro zone are softening according to the latest German consumer price report. ... This gives the European Central Bank plenty of flexibility to ease monetary policy, and the only question is when they will act,” she added.
Among other major currency pairs, the British pound GBPUSD -0.29% dropped to $1.5557 from $1.5640, while the Japanese yen edged higher, as the dollar USDJPY -0.50% slipped to ÂĄ79.05 from ÂĄ79.49.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.
Sara Sjolin is a MarketWatch reporter, based in London.
