Euro drops after Moody’s comments on Spain, dollar up

NEW YORK (BestGrowthStock) – The euro fell (Read more about the trembling euro. ) sharply on Wednesday after Moody’s said it may downgrade Spain’s debt rating and investors awaited more news on how policymakers will resolve the eurozone’s fiscal crisis.

The Moody’s report, saying the ratings agency placed Spain’s Aa1 ratings on review for a possible downgrade, was a reminder that fiscal problems in Europe are far from over.

The negative news from ratings agency Moody contributed to the euro’s biggest one-day fall in percentage terms since late November.

The U.S. dollar ended higher, bolstered by U.S. data showing rising industrial production in November. Consumer price inflation remained subdued also supporting the Federal Reserve’s quantitative easing policy.

“Going forward, we certainly think the pressure on the euro will be lower. Sharp declines in the currency would be event-dependent,” said Aroop Chatterjee, chief FX quant strategist at Barclays Capital in New York.

“But the potential for sharp declines is higher than for any meaningful appreciation,” Chatterjee said.

The increase in the pace of European Central Bank buying of peripheral bonds helped stabilize the euro recently, but Chatterjee said the additional purchases were not enough.

Overall, the Barclays team expects the euro to fall to $1.28 over the next three months, before recovering.

In late afternoon New York trading, the euro was down 1.29 percent against the dollar at $1.3227, off an earlier low of $1.3211 on Reuters data and $1.3210 on electronic trading platform EBS.

Traders said the euro’s bias was neutral, although a push higher is a possibility as long as the $1.3164 support — the December 9 low on trading platform EBS — holds. On the other hand, a break above $1.3496 will cement the case that the fall from $1.4283 — the November high — is complete.

The euro edged 0.3 percent lower against the Swiss franc to 1.2802 francs, having hit a record low of 1.2758 on trading platform EBS in the wake of the Moody’s news on Spain.

The franc gained as worries about debt problems in some European countries encouraged investors to reduce exposure to riskier euro zone assets and seek safer alternatives.

Contributing to the euro’s fall, the dollar firmed after mostly upbeat economic data lifted U.S. bond yields, enhancing the appeal of some dollar-denominated assets.

The 10-year U.S. Treasury yield rose to 3.51 percent helped by above-forecast U.S. retail sales data.

“The (U.S.) data doesn’t really change expectations that the economy is improving gradually and because it hasn’t really surprised in either direction, it … allows the market to revert back to what it’s most comfortable with,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

EU heads of state and government meet on Thursday and Friday to discuss the region’s spreading debt crisis, but expectations of meaningful progress are low.

The dollar also gained 0.7 percent against the Japanese yen to 84.25 yen on electronic trading platform EBS.

In the options market, traders cited strong buying of U.S. dollar calls — a bet of further currency appreciation — against the yen, sterling, and euro.

Sterling fell 1.5 percent against the dollar, at current prices the biggest one-day fall since early May.

Euro drops after Moody’s comments on Spain, dollar up