The euro tumbled on Thursday, hitting a record low against the Swiss franc and a three week low against the dollar as investors sought safe-haven assets on mounting concerns Greece’s problems are far from resolution. Selling in the euro accelerated, leaving it on course to drop below $1.40 as yields on weaker euro zone bonds surged, expanding their spreads against German Bunds to their widest ever.
Violent protests in Athens against government austerity highlighted the political obstacles to a second bailout, with Prime Minister George Papandreou forced to reshuffle his cabinet to salvage his government after resignations by ruling party lawmakers. Adding to negative euro sentiment were comments from European Central Bank policymaker Nout Wellink, whom a Dutch newspaper quoted as saying the European bailout fund should be doubled.
The euro trimmed losses against the dollar after data showed US housing starts and initial jobless benefit claims came in better than expected, easing the market’s risk aversion but analysts said the data was a secondary headline. “The (US) data is going to be taking a back seat to euro zone headlines today,” said Omer Esiner, chief market analyst, Commonwealth Foreign Exchange, Washington. “Interbank lending is starting to suffer and that has sparked concern that we could see a seizure in interbank lending like we saw in 2008.
“And euro zone officials continue to bicker publicly, so the general feeling is the crisis is taking a turn for the worse,” said Esiner. The euro dropped below 1.20 Swiss francs to plumb a lifetime low of 1.1946 francs on electronic trading platform EBS, before climbing back to 1.19869, down 0.9 percent on the day. Seen as a safe-haven currency, the franc brushed off statements by the Swiss National Bank expressing concern about its gains, as the bank gave no sign of action that would stem the currency’s upside.
Against the dollar, the euro fell 0.6 percent to a session low of $1.4073 on EBS, its lowest since late May. It last traded at 1.4110, down 0.5 percent. The single currency has lost 4.2 pct since June 7. Thursday’s decline was a break below support around $1.41525 on EBS, its 100-day moving average. A close below that level would offer a technical indication that the euro was vulnerable to more losses, and analysts said the single currency was poised for a move down to May’s trough around $1.3970.
“There’s a strong possibility of the euro breaking below $1.40 and the best way to play euro/dollar right now is to sell into any strength,” said Neil Mellor, currency strategist at Bank of New York Mellon. The euro’s fall supported the dollar against a basket of currencies, pushing the dollar index DXY up around 0.3 percent to a high of 75.843.
