The euro tumbled on Tuesday to a fresh four-year low against the dollar on speculation Germany's ban on naked short-selling of some securities would encourage more traders to bet against the 16-nation currency. Analysts said Germany's move did little to resolve Europe's debt crisis, and would simply channel more investors to express bearish views on the eurozone through its currency, now that there are restrictions on certain types of short sales of stocks and bonds.
The German government plans to ban naked short-selling from midnight in the shares the country's 10 most important financial institutions. The ban will also apply to euro government bonds and credit default swaps (CDS) based on those bonds. In late New York trading, the euro was down 1.5 percent at $1.2213, after earlier dropping as low as $1.2161 on electronic trading platform EBS, the weakest level since April 2006. Traders expect it to fall to $1.18 in the near term.
Worries about debt troubles in weaker eurozone economies and the long-term economic impact of austerity measures that their governments are planning have weighed heavily on the single currency. Since the beginning of the year, it has lost almost 15 percent versus the greenback.
Euro/dollar one-month risk reversals, which show a bias for puts, increased to -2.6125 on Tuesday from about -2.4 at midday, according to GFI data. On Monday, euro risk reversals surged to -3.90, showing the most bearish sentiment on the euro since GFI made options data available to Reuters in early 2007.
Euro/dollar one-month vols, meanwhile, surged as well to 15.25 from about 13.77 percent earlier in the session. On Monday, it closed at 15 percent. Against the yen, the euro fell 1.7 percent to 112.76. The dollar dropped 0.3 percent to 92.32 yen. The ICE Futures US dollar index, which tracks the greenback versus a basket of currencies, rose to a 14-month high of 87.357 before easing back to 87.096, up 1 percent on the day.
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