Euro tumbles to 1-year low on Greek contagion fears

By Vivianne Rodrigues and Steven C. Johnson

NEW YORK (BestGrowthStock) – The euro tumbled to a fresh one-year low against the dollar on Tuesday amid fears that aid for Greece may not prevent debt crises in other euro zone countries, prompting investors to seek shelter in the U.S. currency.

The euro broke below $1.30 for the first time since April 2009 while the dollar rose more than 1 percent against the Swiss franc as well as the Australian and Canadian dollars.

Investors snapped up safe-haven U.S. Treasuries and punished riskier U.S. and European equities.

“There is no faith in what the EU and IMF have proposed for Greece,” said Dean Popplewell, chief currency strategist at OANDA, a foreign exchange brokerage in Toronto.

“Capital markets are betting on a Greek default as Greece’s own populace is not going to accept the terms of this rescue, and contagion is a real concern hurting the euro.”

Even with Greece set to receive 110 billion euros ($143 billion) in emergency loans from the European Union and International Monetary Fund, investors are on edge about the fiscal health of other euro zone countries, especially Spain and Portugal.

The IBEX 35 index (.IBEX: ) of Spanish shares fell more than 5 percent. Spain’s prime minister dismissed as “complete madness” a market rumor his country would ask for a 280 billion euro loan from the euro zone.

Analysts also cited concern about Greece’s ability to enact promised spending cuts as union strikes in the country shut down tax offices, schools and hospitals.

In late afternoon trading in New York, the euro was down 1.5 percent at $1.2993. The single currency traded as low as $1.2981 — its lowest level since April 2009 — according to electronic trading platform EBS. The euro has already lost more than 9 percent against the dollar in 2010.

Tom Fitzpatrick, global head of FX strategy at Citigroup in New York, said the break below $1.30 on euro/dollar has a negative “psychological” impact but technical charts point to strong resistance in the $1.2885 area.

Longer-term indicators show that a weekly close below the $1.3090 level “would be more significant,” Fitzpatrick added, and could pave the way for a further drop to $1.23-$1.24, a test of 2009 lows for the currency.


The Australian dollar slid 1.9 percent, its biggest one-day drop since February, to $0.9089 after the Reserve Bank of Australia raised interest rates but hinted that the first stage of tightening was over.

Traders said China’s recent monetary tightening added to pressure on other commodity-linked currencies such as the Canadian dollar, which fell 1.4 percent to C$1.0248 per U.S. dollar.

Sterling fell 0.5 percent to $1.5160 ahead of Britain’s parliamentary elections on Thursday, while the dollar dipped 0.2 percent to 94.36 yen after hitting 94.98 yen, its strongest since August 24.

The euro fell (Read more about the trembling euro. ) 1.7 percent to 122.68 yen.

“There is definitely an air of pessimism spreading across markets today,” said Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston.

Traders said the dollar, which rose to its highest since May 2009 against a basket of six major currencies (.DXY: ), was supported by signs that the U.S. economy was on the mend.

Data released on Tuesday showed pending U.S. home sales rose 5.3 percent in March while factory orders increased 1.3 percent. Both numbers handily beat forecasts.

A report on Monday that showed U.S. manufacturing registered its fastest pace of growth in nearly six years last month helped, and investors expect Friday’s U.S. payrolls report to show another month of job gains in April.

Strong economic data has also reinforced views that the U.S. Federal Reserve could raise interest rates from near zero this year, while Europe’s debt woes are likely to keep euro zone rates on hold in 2010.

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Euro tumbles to 1-year low on Greek contagion fears