The euro fell to a four-month low against the dollar on Monday as worries about Europe's debt crisis mounted, after a source said Portugal was under growing pressure to accept EU/IMF aid. A senior eurozone source told Reuters on Sunday pressure was growing on Portugal from Germany and France to seek financial help from the European Union and International Monetary Fund to prevent the debt crisis spreading.
German Finance Minister Wolfgang Schaeuble said on Monday Germany was not forcing any country to seek aid. The single currency fell to lows not seen since mid-September at $1.2860 on trading platform EBS, after stops around $1.2900 and $1.2870 were triggered. It recovered to $1.2891 in European trade, down 0.2 percent on the day, with traders reporting option barriers at $1.2850.
It also fell 0.2 percent against the Swiss franc to 1.2467 francs. It hit a record low of 1.2398 in December. Market players said the euro looked vulnerable due to worries about the sustainability of public finances in Portugal, Spain and Italy, which are all due to tap the bond market for funds this week.
"There is a realistic possibility that Portugal will not manage to generate the funds required for 2011 without foreign aid and this is a negative for the euro," said You-Na Park, currency strategist at Commerzbank. "But even if Portugal does seek a bailout, the market may well turn on Spain as the next candidate. We still see downside risks for the euro from here," she added. Technical analysts said the outlook for the single currency was bleak after the break below its 200-day moving average last week at $1.3073.
The euro's next support was the 61.8 percent retracement of its rally from last to November, around $1.2794. "Last week's close below the 200-day moving average was particularly bearish. There is now a risk that the euro could revisit the low $1.20s area," said Kathleen Brooks, research director at FOREX.com. "But moves down are likely to be slowed by Asian reserve diversification," she said.
China voiced support for European government bonds on Friday as crucial investment choices for its foreign exchange reserves. The euro has fallen from a peak of $1.3435 on January 4, as investors sold peripheral eurozone bonds ahead of new debt supply this week. Portugal, Spain and Italy seek to raise up to an estimated 11.25 billion euros from investors at bond auctions this week.
Portugal will draw the most intense scrutiny when it tries to sell up to 1.25 billion euros of five- and 10-year debt on Wednesday. Analysts said that if investors judge that the price Lisbon needs to pay to get funds is too high to sustain borrowing in the long term, Portuguese bonds may sell off quickly and force the country to seek emergency EU and IMF funds.
The dollar index, which measures its performance against a basket of major currencies, rose 0.24 percent to 81.230, having risen to a high of 81.273-its highest since early December. But the dollar's upside looked limited after Friday's US employment report on showed a rise of 103,000 jobs in November, well short of economists' expectation for 175,000. The unemployment rate at 9.4 percent was still very high, as fewer people looked for work.
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