Dollar rises broadly

The dollar rose for a second straight day on Tuesday after North Korea's shelling of a South Korean island enhanced the currency's safe-haven appeal, while fear that an Irish debt crisis could spread punished the euro. The euro plunged to a two-month low beneath $1.34 and also dropped below 111 yen for the first time since mid-September as investors worried that Spain and Portugal may have to follow Ireland in seeking emergency aid to stave off a debt crisis.
That left the euro, in the words of German Chancellor Angela Merkel, in an "exceptionally serious" situation. Analysts said it could easily slip as far as $1.30. The euro fell 1.9 percent to $1.3371, its biggest daily decline since August. It was down 2 percent at 111.18 yen.
"Things could get more troubling as the market is looking beyond Ireland and turning to Spain and Portugal. Traders will likely target $1.30 into year end," said Hidetoshi Yanagihara, senior currency trader at Mizuho Corporate Bank in New York. Spain frightens investors most as it is the eurozone's fourth-largest economy and, unlike Ireland, still has to raise money on capital markets this year. Spain's short-term cost of borrowing almost doubled at a tender on Tuesday. This came as North Korea fired scores of artillery shells at a South Korean island, killing two in one of the heaviest attacks by North Korea on its neighbour since 1953. It sparked a broader move away from risky trades and into US Treasuries and the dollar.
The dollar rose 3.5 percent against the South Korean won to its highest level since early September. Investors also cut exposure to the high-yielding Australian dollar, which fell 1.6 percent against its US counterpart. Against the yen, which also tends to attract safe-haven buying when risk aversion spikes as it did on Tuesday, the dollar edged down 0.2 percent to 83.16 yen. But an index of the dollar against six other major currencies rose 1.3 percent, its biggest daily gain since mid-October.
The euro's fall against the dollar extended after US data showed sales of previously owned homes fell more than expected in October, increasing risk aversion. The euro fell below $1.3438 against the dollar, a 50 percent Fibonacci retracement of its August through November rally.
The euro zone's debt crisis overshadowed the release of minutes from the Federal Reserves's last policy meeting, which showed officials considered even more drastic options to boost growth before it settled on buying $600 billion in Treasuries. For months, anticipation of the Fed's bond-buying plan, announced this month, pushed the dollar sharply lower against major currencies, though its decline stalled this month as Europe's problems emerged anew.