* Euro falls broadly, hits 11-mth low vs dollar of $1.3005
* Investors speculate more euro zone countries may be
* Traders: Asian sovereign bids ahead of $1.30 limit further
fall for now
By Naomi Tajitsu
LONDON, Dec 14 - The euro slumped to an 11-month low
against the dollar on Wednesday, as investors speculated that
more euro zone countries may be downgraded in the near term
given that a quick solution to the region's debt crisis remains
Market participants also drove the single currency lower
against the yen and sterling ahead of an Italian bond auction
later in the day.
Poor demand at the sale may send 10-year Italian bond yields
towards lifetime highs, after they have already climbed above
7.0 percent a level considered to be unsustainable.
The euro fell as low as $1.3005, its weakest since
early January. Investors dumped the single currency for the
safety of the dollar, which jumped to its highest level since
January versus a currency basket.
The euro quickly bounced back to around $1.3040, after a
further fall was cushioned by hefty bids from an Asian sovereign
name, according to traders. More bids were seen around the
psychologically key $1.30 level and below.
Market participants also cited hedging-related demand from
European corporates as preventing more losses, but analysts
argued the single currency may take a further pummeling if
investors become more pessimistic about the euro zone's health.
"There's definitely strong support around $1.30, and also
in the $1.30-1.29 region," said Arne Lohmann Rasmussen, chief
analyst at Danske in Copenhagen.
"But if we get a further deterioration of the euro zone debt
crisis, if we see a lot of countries being downgraded, or more
problems in the banking sector, this $1.30 is not going to
Markets were braced for a possible mass downgrade of euro
zone countries, which would deepen the region's debt crisis,
after last week's key summit offered no hopes for an immediate
Speculation is rife that a downgrade for France could come
The single currency fell to 101.44 yen, its
weakest since early October, while hitting a nine-month low of
Market participants said a fall below $1.30 in euro/dollar
may increase its downward momentum due to options-related
"If we do go below, options players are again likely to
exacerbate the move as they scramble to cover lost gamma," Citi
analysts said in a Citi FXWire note.
But they added: "More options barriers are reported at
$1.2950 and in size at $1.2900. The 2011 low at 1.2855 offers
key support below there."
The dollar index, which tracks the dollar's value
against a currency basket, rose as high as 80.407.
Investors picked up the U.S. currency, considered a safe
haven given its vast liquidity, after the Federal Reserve on
Tuesday warned that turmoil in Europe posed a big risk to the
The U.S. central bank refrained from boosting its easing
measures this month, as expected.