Euro drops on Greece; China news dents high-yielders

NEW YORK Fri Feb 12, 2010 4:37pm EST

1 of 2. One Euro coins are pictured after being minted at the Austrian national mint in Vienna April 8, 2009.

Credit: Reuters/Leonhard Foeger

Related Video

Related Topics

NEW YORK (Reuters) - The euro fell to a nearly nine-month low against the U.S. dollar on Friday as questions persisted about a rescue deal for debt-stricken Greece, while higher-yielding currencies weakened after China unexpectedly raised bank reserves.

The euro headed for its fifth weekly drop versus the safe-haven greenback as a lack of details in Thursday's pledge by the European Union to help Greece fanned fears of a wider euro zone debt crisis.

Appetite for stocks and higher-yielding currencies like the Australian dollar was further dampened after China hiked bank reserves for the second time this year, stoking worries that aggressive monetary tightening by China might slow a global economic recovery.

"Globally, we're still waiting for details on the EU rescue plan for Greece and that's weighing on the euro. The dollar as a result has been sought after by default," said Dean Popplewell, chief currency strategist at OANDA in Toronto.

"Certainly the Chinese move to raise reserve requirements has put a blip on the Australian and Asian markets and overall risk appetite as well," he added.

In late New York trading, the euro was down 0.5 percent at $1.3617, after dropping to $1.3533, its weakest level since May 2009, according to Reuters data.

The euro's losses pushed up the dollar to 80.748 against a currency basket, the highest since July 2009. The ICE Futures' dollar index was last at 80.315 .DXY, up 0.4 percent.

The single European currency also struck a decade low against the Australian dollar at A$1.5275.

Concern over how Athens will service its debt has hammered the euro, which has fallen nearly 10 percent since late 2009. There are worries Spain and Portugal could face similar debt problems and Europe's post-recession recovery could falter.

Peripheral euro zone government bond yield spreads against German benchmarks further widened on Friday, reflecting these concerns.

The next steps in the Greece crisis are meetings early next week of EU finance ministers, although analysts said that might still be too early to expect much clarity on what the bloc will do to help Athens tackle its debt.

Analysts said China's surprise reserve announcement aggravated selling in higher risk currencies, with the Australian dollar falling 0.4 percent against the U.S. dollar to US$0.8874 and the New Zealand currency dropping to US$0.6963 down 0.7 percent.

Against the yen, the dollar rose 0.3 percent to 89.96 yen, drawing support from a stronger-than-expected U.S. retail sales report, which offset a decline in U.S. consumer confidence for February.

The euro jumped to a session high versus the Swiss franc earlier, with traders citing activity by the Swiss National Bank. The Swiss central bank declined to comment on the currency moves.

The euro rose as high as 1.4701 francs, according to Reuters data, and was last trading at $1.4675, up 0.1 percent on the day. The dollar also gained versus the Swiss franc to 1.0782, up 0.7 percent.

Markets have been on the alert for SNB action over the past year as the bank has tried to weaken the franc in efforts to fight deflation.

(Editing by Chizu Nomiyama)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

Track China's Leaders