The euro shed early gains against the dollar and fell versus other currencies on Monday as initial relief over European Central Bank purchases of Spanish and Italian government bonds fizzled out in the face of a further selloff of risky assets. The US currency hovered near record lows against the safe-haven Swiss franc and yen after Standard & Poor's cut Washington's AAA sovereign rating on Friday, bolstering the view that political wrangling may tarnish the ultra-secure status of US assets.
Traders said the ECB bought Spanish and Italian debt early in the European session after it said on Sunday it would "actively implement" its bond-buying programme. But the purchases did little to lift the negative sentiment that has enveloped financial markets on concerns the eurozone's debt crisis is spreading to core countries, and analysts said they see more room for the euro to fall.
"There's a recognition that just buying Italian or Spanish bonds isn't in itself enough to alleviate the structural problems of either economy," said Jeremy Stretch, currency strategist at CIBC Markets. The single currency broke below reported stop loss orders at $1.4230 to hit a session low around $1.4205, reversing an early rally to $1.4400 as European shares fell 1.6 percent.
The euro also broke below support at its 21-day moving average around $1.4245 and further falls could see it target Friday's low around $1.4054. Trading in the euro remained volatile, with one-month euro/dollar implied vol rising to its highest of the year, while one-month risk reversals, which track the skew between options to buy or sell the currency, remained strongly in favour of selling euros. The euro fell more than 1 percent on the day versus the safe-haven franc and the yen, hovering within range of a lifetime low versus the Swiss currency.
The dollar index was steady at 74.634. The dollar fell 0.7 percent to 77.84 yen on Monday, having slipped to around 77.45 on the EBS trading platform in early Asian trade. It was down roughly the same amount at 0.7620 Swiss francs, in sight of a record low around 0.7480 plumbed earlier in the day. The US currency has shed more than 9 percent against the Swiss franc since the start of July and about 4 percent against the yen as investors have ploughed into those currencies on the view they offer the most security from a darkening economic outlook and worries over US and European sovereign debt.
Demand for the franc and the yen kept alive the threat of intervention by Swiss and Japanese authorities to weaken their currencies, whose strength eats into their exports. Market participants expect Japanese authorities will re-enter the market if the dollar falls to 77.10 yen - the level at which it sold yen for dollar last week.