The euro has sunk to six-month lows against the dollar as traders focus on the impact of the negative Nice vote in Ireland and on large sellers in the market.
The currency dropped quickly in afternoon trading yesterday and traders said there were large volumes from one very large bank. Dealers warned also that the euro was set to test all-time lows over the next week or so.
At the same time sterling fell to new 15-year lows against the dollar as it became clear that prime minister, Mr Tony Blair's cabinet reshuffle paved the way for a referendum on the euro.
The euro fell to $0.8417 from $0.8520 at the opening, its lowest since November 27th but still above the record low of $0.8230 set last October.
According to Mr Jim Power, head of investment at Friends First, US investors were also selling to raise funds for corporate bonds which were being issued this week.
"It is also a reaction to the Nice referendum. The result is making people nervous about the currency and we are in an environment where sentiment is so bad that any excuse to sell will do," he said.
Sterling also lost a little further ground against the dollar as it became clear that Mr Blair's new Cabinet is firmly euro friendly.
So far Mr Blair has only promised that the assessment of the five economic tests set by the British government for sterling's participation in the single currency will take place within the first two years of the new administration. It could therefore be some time before it was clear whether Mr Blair believed he had a good chance of turning around public opinion which was hostile to the euro.
A referendum, according to the Financial Times, is possible in autumn 2002 or spring 2003. However, it still seems likely that the Chancellor, Mr Gordon Brown, will resist any campaign in favour of the euro until he has decided the economic tests have been passed.
As a result sterling is unlikely to fall much further - at least until the autumn when the campaign may begin in earnest.
The euro rose to around 61.35p against sterling from 61.65p earlier. As a result the Irish pound was trading at around 77.90p against sterling.
The yen also fell against the dollar after weaker-than-expected Japanese economic growth data showed the country was on the verge of recession.
The yen took a beating in Asian and European trade on news that Japan's economy contracted 0.2 per cent in the first three months of this year, compared with expectations of a 0.2 per cent rise.
The figures raised fears the economy was slipping into its fourth recession in a decade and pushed Japanese stocks down 1.5 per cent. Mr Taro Aso, a senior official in the ruling Liberal Democratic Party, compounded the yen's woes, admitting the economy was unlikely to meet the government's growth target for the current fiscal year and saying Japan should take all available steps to reflate its economy, including further monetary easing.
