The euro fell against the dollar and the Swiss franc on Tuesday, snapping six straight days of gains, after Moody's cut Portugal's credit rating to junk. Weak eurozone data and concerns on China had already weighed on risk sentiment and boosted safe-haven currencies. Concerns about Greece have not faded despite the approval of a 12 billion-euro loan by eurozone finance ministers, and Moody's downgrade of Portugal only added to risk aversion.
Moody's Investors Service cut Portugal's credit rating by four levels to Ba2, two notches into junk territory, saying there is great risk the country will need a second round of official financing before it can return to capital markets. "This renews the question of whether or not just Greece but the other peripherals are likely to need more bailouts," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. "These issues were not extinguished last week. There was a nice dose of water poured on them, but they are still smoldering, and this is like adding gasoline to those smoldering ashes."
The euro dropped 1.7 percent against the safe-haven Swiss franc to a low of 1.21220 francs, pulling back from a five-week high touched on Monday on trading platform EBS. The euro was down around 0.9 percent against the dollar at $1.44150 on EBS after falling as low as $1.43950, taking a breather from recent gains made after Greece approved tough austerity measures last week. The euro had gained more than 2 percent against the greenback last week in its best weekly performance since January.
On Monday the euro hit a one-month high versus the dollar at $1.45800. The session low on Tuesday posted at $1.4403. The Portuguese credit rating cut followed another setback for Greece on Monday, when ratings agency Standard & Poor's warned it would treat a rollover of privately held Greek debt, now being discussed, as a selective default. Greece also needs a second aid package worth some 110 billion euros, which eurozone finance ministers said would be finalised by mid-September.