Euro slides as debt crisis worsens

Updated: 2011-05-24 07:53

By Ron Harui (China Daily)

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Singapore - The euro touched a record low against the Swiss franc as concern over Europe's sovereign debt crisis deepened, reducing the appeal of the region's assets.

The 17-nation currency reached the lowest in a week against the dollar after Spain's Socialist party suffered its worst electoral defeat in more than 30 years and Standard & Poor's on May 20 said it may lower Italy's credit rating. The dollar strengthened versus all of its major counterparts as declines in Asian stocks spurred demand for safer assets.

"The weekend overall, including the Spanish elections, has just provided another reason to be uneasy about the European sovereign-debt situation," said Sean Callow, a senior currency strategist at Westpac Banking Corp in Sydney. "It's another negative for the euro."

The euro fell to an all-time low of 1.2349 francs before trading at 1.2389 as of 11:22 am in Tokyo from 1.2425 last week. Europe's shared currency dropped to $1.4090 from $1.4161 in New York on May 20, after earlier touching $1.4079, the least since May 16. The currency weakened to 115.46 yen from 115.69 yen. The dollar traded at 81.94 yen from 81.70 yen.

The MSCI Asia Pacific Index of shares slipped 1.6 percent and the Nikkei 225 Stock Average lost 1.4 percent on Monday.

The euro has weakened 0.2 percent since May 20, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar has risen 0.3 percent.

"A risk-off tone is quickly permeating its way through the market psyche as tensions surrounding the euro zone periphery reach fever pitch," Credit Agricole CIB's Hong Kong-based head of global foreign-exchange strategist Mitul Kotecha and Paris- based economist Frederik Ducrozet, wrote in a note on Monday. "The euro, which is finally succumbing to bad news about the periphery, will continue to face pressure in the short term."

Spanish voters punished Prime Minister Jose Luis Rodriguez Zapatero's party for soaring unemployment and spending cuts that aimed to shield the nation from Europe's debt crisis. With 99 percent of votes counted, the opposition People's Party won 38 percent of the vote in municipal elections, compared with 28 percent for the ruling Socialists, the Interior Ministry said.

German Chancellor Angela Merkel's party slumped to third place in a state election in Bremen and blamed the result on having to shoulder Europe's debt crisis, as the main opposition Social Democrats were re-elected.

The Social Democratic Party took 38.3 percent in Bremen, a city-state that includes the car-exporting port of Bremerhaven, ARD television projections showed on Sunday. The Greens won 22.8 percent to take second place and continue their coalition with the Social Democratic Party of the past four years. Merkel's Christian Democratic Union slid to 20.2 percent, its worst result since 1959.

S&P last week cut Italy's credit-rating outlook to negative from stable, citing slowing economic growth and "diminished" prospects for a reduction of government debt. Fitch Ratings on May 20 lowered Greece's long-term debt rating to B+, four notches below investment grade, and said even a voluntary extension of the nation's bond maturities would be "a default event."

The Australian dollar fell for a second day versus the greenback as Asian equities slid after concern increased that Europe's debt crisis will worsen.

"There's a risk-aversive mood in the market, spurred by uncertainty about the European debt crisis," said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd, which provides foreign-exchange margin-trading services.

Bloomberg News


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