The euro weakened against the dollar on Thursday and touched a record low against the Swiss franc on fear that harsh fiscal tightening in Europe would dampen an already-weak recovery. While investors were relieved that Spain and Portugal were taking steps to cut budget deficits, they also feared this would slow down eurozone growth.
That knocked the euro down 0.7 percent to $1.2535, about 25 cents from last week's 14-month low. On Monday, the currency approached $1.31 following the announcement of a $1 trillion bailout for financially troubled eurozone countries, but market optimism did not last long.
"There's a definite concern that the reduction in government expenditures will cause a precipitous decline in GDP," said Jessica Hoversen, a fixed income and currency analyst at MF Global in Chicago. "Europe basically looks like a zombie economy, and on top of it, you're seeing a massive retrenchment in government spending." Traders said the euro has broken the bottom of its recent trading range near $1.2610 and is expected to test key support near $1.25. Selling would likely accelerate beneath $1.25, pushing the euro toward $1.2330, its October 2008 low.
The euro shed 1.3 percent to 116.06 yen and hit a record low of 1.3997 Swiss francs, according to EBS. The dollar fell 0.6 percent to 92.60 yen. Sterling fell 1.5 percent to $1.4620, stung by data showing the UK goods trade deficit widened more than expected in March. That came after Bank of England Governor Mervyn King said weaker eurozone export markets had increased growth risks for the British economy.
The Australian dollar was up 0.3 percent at $0.8961, but retreated from a session high of $0.9026 reached after stronger-than-expected Australian employment data. But analysts said further gains could be limited as Europe's debt crisis and worries about global economic strength may conspire to keep Australian interest rates on hold.
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