Euro slips

The euro slipped against the dollar on Tuesday, weighed by concerns about Greece's fiscal health after Fitch downgraded the country's credit rating. Fitch Ratings cut Greece's debt rating to BBB+ from A- with a negative outlook, the first time in 10 years a major ratings agency has put Greece below an A grade, citing fiscal deterioration in the euro zone's weakest member.
The cut followed a Standard & Poor's report that Greek banks faced the highest risks in western Europe. An unexpected 1.8 percent month-on-month decline in German industrial output also weighed on the euro, while concerns about Dubai's debt woes pushed investors to seek the safety of the US currency.
The "euro has been pressured by Fitch's downgrade of Greece and by S&P's recent decision to put both Greece and Portugal on negative watch (with a downgrade for Greece having broader implications for its EU compliance)," said Camilla Sutton, currency strategist at Scotia Capital in Toronto in a note to clients.
"We think sovereign rating issues will prove an important driver of foreign exchange in 2010, with currencies whose countries face potential downgrades under-performing," she said.
In early New York trade, the euro was down 0.5 percent at $1.4746, while the dollar index, a non-trade calculation of the dollar's performance against a basket of six currencies, gained 0.3 percent to 76.017. Worries about Dubai deepened as rating agency Moody's downgraded six Dubai-linked issuers after concluding that no "meaningful" government support would be provided for top firms like DP World or Emaar Properties.
The dollar stayed weak against the yen, however, falling 1.4 percent to 88.23 yen, after Federal Reserve Chairman Ben Bernanke cooled speculation on Monday of an early rise in US interest rates. The euro was down 1.9 percent against the yen at a session low of 130.08.
Bernanke said the US economy still faced headwinds and unemployment could stay high for some time, playing down the impact of last Friday's stronger-than-expected jobs report.
The US data, which showed fewer jobs were lost in November than forecast, raised expectations the Fed may start to normalise ultra-easy monetary policy earlier than expected and triggered renewed buying of the dollar, which has now faded. "Bernanke's speech was dovish, and he suggested there would not be an immediate rate rise," said Marcus Hettinger, global currency strategist at Credit Suisse in Zurich.