🤑 It doesn’t get more affordable. Grab this 60% OFF Black Friday offer before it disappears…CLAIM SALE

FOREX-Dollar rallies, euro at 1-year low on debt fears

Published 05/04/2010, 02:05 PM
Updated 05/04/2010, 02:08 PM

* Euro tumbles against dollar to one-year low below $1.31

* Debt contagion fears grow; Spain says not seeking aid

* Aussie slides after RBA hikes rate but signals pause

* Dollar helped by stronger U.S. data (Adds comments, details, changes byline)

By Vivianne Rodrigues and Steven C. Johnson

NEW YORK, May 4 (Reuters) - The euro tumbled to a one-year low against the dollar on Tuesday on 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 fell below $1.31 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 of Spanish shares was down 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 afternoon trading in New York, the euro was down 1.3 percent to $1.3013, according to Reuters data, just above a one-year low touched earlier.

OANDA's Popplewell said traders were targeting $1.30, which he said may be tough to pierce on Tuesday.

James Chen of FX Solutions in Saddle River, New Jersey, said the euro could target further downside support around $1.29, while on a longer-term basis, a major downside support is located around $1.25.

AUSSIE SLIPS, U.S. GROWTH PICKS UP

The Australian dollar slid 1.8 percent earlier, its biggest one-day drop since February, to $0.9099 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 1.2 percent to C$1.0223 per U.S. dollar.

Sterling fell 0.5 percent to $1.5162 ahead of Britain's parliamentary election on Thursday, while the dollar was slightly lower at 94.40 yen after hitting 94.98 yen, its strongest since Aug. 24. The euro fell 1.4 percent to 123.02 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, 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 that month. 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 Federal Reserve -- the U.S. central bank -- 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. (Additional reporting by Wanfeng Zhou; Editing by James Dalgleish)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.