The euro fell to a two-month low against the dollar on Wednesday, extending its losses on uncertainty over Ireland's plans to tackle its debt problems and fears the crisis could spread to other peripheral eurozone countries. Peripheral government bond yield spreads over Germany widened, and a North Korean statement after Tuesday's artillery clash that the South's action was driving the peninsula to the brink of war prompted investors to seek safe-haven currencies.
These factors lifted the dollar to a two-month high against a currency basket, while the problems in the eurozone's periphery meant the euro quickly shrugged off a record high German Ifo business climate index for November. Uncertainties remained over whether the crisiss in Ireland would be resolved, as the teetering government prepared to release a four-year plan to save 15 billion euros as a condition of an EU/IMF bailout. Standard and Poor's cut its sovereign rating on Ireland overnight.
At the same time, worries intensified that the crisis could spread to Portugal or even Spain. Not helping the euro's cause was a poor response to the sale of new 10-year bonds by Germany. Some traders said if investors were starting to shun Bunds as well-considered a safe-haven asset-it was hard to see how the euro would stabilise in the near term.
"The Ifo survey was very strong but it did nothing to lift the euro, and the trend is clearly bearish into year-end," said Stephan Maier, currency strategist at Unicredit in Milan. The euro was down 0.2 percent at $1.3343, having hit a two-month low of $1.3284 and broken below its 100-day moving average - currently around $1.3297 - for the first time since early September. It fell nearly 2 percent on Tuesday.
The euro may test $1.3232, the 61.8 percent retracement of its August-November rally, before targeting $1.3000. The euro also fell to a two-month low against the yen and lost ground against the Swiss franc, with both currencies benefiting along with the dollar from investors seeking safe haven-assets. "The euro is very vulnerable due to the Irish crisis and worries about whether Portugal will be next in line. These are not things that will be solved today or tomorrow," said Niels Christensen, currency strategist at Nordea in Copenhagen.
The dollar index was up 0.08 percent at 79.739, having hit a high of 79.995, its strongest in two months. Analysts said the eurozone worries eclipsed concerns about tensions between North and South Korea, which most believed would not escalate into something more serious. The Australian dollar was up 0.5 percent from late US levels at $0.9770, rebounding from a four-week low of $0.9708 on buying by sovereign names.