Euro tumbles broadly as Greece concerns escalate

By Vivianne Rodrigues

NEW YORK (BestGrowthStock) – The euro tumbled to a 14-month low against the dollar and the yen surged on Thursday as fears of contagion stemming from a Greek debt crisis escalated and pushed U.S. stocks (Read more about the stock market today. ) into negative territory for the year.

Investors rushed to the perceived safety of the U.S. dollar and Japanese yen as the European Central Bank offered no new measures to ease a Greek debt crisis after a meeting earlier on Thursday.

Declines in the single currency accelerated after stocks on Wall Street tumbled as much as 9 percent in volatile afternoon trading in New York — briefly erasing most of this year’s gains.

After dropping to $1.2523, the euro was last down 1.5 percent at $1.2615, its lowest since March 2009.

“This is a full capitulation sell-off we’ve seen in the last couple of hours,” said Brian Dolan, chief currency strategist, at Forex.com in Bedminster, New Jersey.

“The sovereign credit worries in Europe started the ball rolling and now it’s a complete panic,” he said.

Confidence in the euro zone has been plummeting as Greece struggles to introduce cuts to public spending in the face of violent protests in Athens.

“Nothing short of a sensational announcement can help the euro at this point. And that certainly did not come from (ECB President Jean-Claude) Trichet,” said Kathy Lien, a director for currency research at GFT in New York.

As expected, the ECB left interest rates at a record low of 1 percent on Thursday. Trichet said the bank had not considered buying government debt to stop the euro’s rout, as some had speculated, and a Greek default was “out of the question.”

Germany’s parliament was due to vote on approving its share of a 110 billion euro EU/IMF Greek rescue package on Friday, while fears of contagion to other heavily indebted euro zone countries persisted, driving a safe-haven bid for the dollar and U.S. Treasury debt.

“Just like in 2008 when Lehman (Brothers) collapsed, sentiment has clearly overwhelmed everything else — data, everything,” said Matthew Strauss, senior currency strategist, RBC Capital Markets in Toronto.

The euro has slumped about 5 percent against the dollar this week and is down almost 12 percent year to date.

CONTAGION FEARS

The single euro zone currency, which hit 110.65 yen earlier — its lowest level since 2001 — was on track for its biggest daily loss against the yen since October 2008, according to Reuters data. It was last down 5.2 percent at 114.09 yen.

“The forex market (Read more about the difference between the forex market and the stock market. ) is concerned about one thing and one thing only and that is ‘contagion,'” said analyst Dennis Gartman, from the Gartman Letter.

Among major currencies, the dollar was only weaker against the yen as Japan’s currency also tends to benefit in times of risk aversion.

The dollar dropped more than 4 percent to as low as 88.03 yen, according to Reuters data. The level was the lowest for the dollar since December 2009 and the worst single-day decline since October 1998.

The euro also hit an all-time low against the Swiss franc at 1.4004 francs, shedding 2.2 percent. Traders said the Swiss National Bank, which has been intervening in the market in recent months to prevent excessive franc strength, earlier stopped defending levels above $1.43.

Sterling also posted its biggest one-day drop since last October to $1.4715 as markets awaited the outcome of closely-contested British elections.

EURO FALLING TOWARD DOLLAR PARITY?

As Greece struggles to consolidate its budget, fears have grown over the effect of the crisis on the more vulnerable members of the euro zone.

“Many expect that Portugal and maybe Spain will follow in Greece’s footsteps and need a bailout from the European Union,” said John Doyle, foreign exchange strategist at Tempus Consulting in Washington.

Currency strategists at BNP Paribas said on Thursday the euro will fall to parity against the U.S. dollar by the first quarter of 2011.

BNP said over the past year the net inflow into European sovereign debt markets has “collapsed.” Official accounts, which had been steady euro buyers and bond investors for years, have “disappeared.”

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Euro tumbles broadly as Greece concerns escalate