Euro sinks versus dollar

The euro slid to an 11-month low against the dollar on Wednesday, as investors speculated that more eurozone countries may be downgraded in the near term given that a quick solution to the region's debt crisis remains elusive. Market participants shunned the single currency even as Germany and Italy managed to find adequate buyers for new bonds at separate auctions, with investors focusing on the fact that Rome's cost to borrow over five years was its highest since the euro was launched.
The euro fell to $1.2965, its weakest since early January, as investors pushed the single currency through options-related barriers at $1.3005, $1.3000, and $1.2990. It retreated from the day's high of $1.3064 hit after solid demand at the Berlin auction. Selling in the euro pushed the safe-haven dollar to an 11-month high versus a currency basket as investors picked up the world's most liquid currency.
The euro is facing more selling pressure as market participants continue to lose hope for a quick solution to the eurozone debt crisis. "The auctions went OK so the euro traded a bit better after that, but the fact that it's come back down tells you that people are taking the opportunity to sell into any bounce," said Geoff Kendrick, currency strategist at Nomura.
The euro clawed back to around $1.2980, but analysts argued the single currency may take a further pummelling if investors become more pessimistic about the eurozone's health. "If we get a further deterioration of the eurozone debt crisis, if we see a lot of countries being downgraded, or more problems in the banking sector, this $1.30 is not going to hold," said Arne Lohmann Rasmussen, chief analyst at Danske in Copenhagen. The single currency fell to 101.27 yen, its weakest since early October, while hitting a nine-month low of 83.74 pence.
Kendrick at Nomura said he expected the euro to stay under selling pressure, but acknowledged that a significant fall below $1.30 before year-end was unlikely. Investors have already piled up bets to sell the currency, and may be wary of taking on more as trading winds down at the end of the year, given that the over-extended positioning could be at risk of a sharp reversal, he said. The dollar index, which tracks the dollar's value against a currency basket, rose as high as 80.593, while scaling a 9 1/2-month high versus the Swiss franc of 0.9495 franc.