The euro fell to a nearly nine-month low against the dollar today as questions remained about a rescue deal for debt-stricken Greece and China unexpectedly raised bank reserve levels.
The euro headed for its fifth weekly drop versus the safe-haven greenback as a lack of details in yesterday's pledge by the European Union to help Athens kept alive fears of a wider euro zone debt crisis.
That sparked a widening in peripheral euro zone government bond yield spreads against German benchmarks and broader concerns trouble in the currency bloc could hurt global economic recovery.
Investor appetite for stocks and higher-yielding currencies like the Australian dollar was further dampened after China raised the level of bank reserves for the second time this year. The move stoked worries aggressive monetary tightening by China may also slow global recovery.
"The European situation is still looming quite strongly and I think that's really weighing on currencies and equities," said Fabian Eliasson, vice president of FX sales at Mizuho Corporate Bank in New York.
"The problem with the euro now is the uncertainty factor." In midday New York trading, the euro was down 0.4 percent at $1.3625, after dropping to $1.3533, its weakest since May 2009, according to data.
The euro's losses pushed the dollar to 80.748 against a currency basket, its highest since July 2009. The ICE Futures' dollar index was last at 80.315, up 0.4 per cent.
Concern over how Athens will service its debt has hammered the euro - it has fallen nearly 10 per cent since late 2009. There are worries Spain and Portugal could face similar debt problems and Europe's post-recession recovery could falter.
Analysts said China's surprise reserve announcement only aggravated selling in higher risk currencies.
The next steps in the Greece crisis are meetings early next week of EU finance ministers, although analysts said that might still be too early to expect much clarity on what the bloc will do to help Athens tackle its debt.
"It's very difficult to see a silver lining for the euro at the moment as it's very difficult to see a solution for Greece," said Jane Foley, currency research director at Forex.com in London.
"And certainly, with China slowing, too, it just enhances the safe-haven behavior toward the dollar."
US consumer confidence slipped in February, data showed today, but a stronger than expected rise in retail sales last month suggested households were feeling a bit more comfortable to spend and sustain the economic recovery.
Falling risk appetite also hit demand for higher-yielding currencies, with the Australian dollar down 0.8 per cent and the New Zealand currency off 1 percent against the greenback.
The single European currency also struck a decade low against the Australian dollar at A$1.5275.
The euro jumped to a session high versus the Swiss franc in late morning trade with traders citing activity by the Swiss National Bank. The Swiss central bank declined to comment on the currency moves.
The euro rose as high as 1.4701 francs, according to Reuters data, and was last trading at $1.4669, up 0.1 per cent on the day.
Markets have been on the alert for SNB action over the past year as the bank has tried to weaken the franc as part of its efforts to fight deflation.
EU leaders declined to set out concrete steps to aid Greece in a statement released following their summit in Brussels yesterday.
They left open how they would respond to a fresh wave of speculative attacks against the bonds, of Greece or countries such as Spain and Portugal, which are also struggling to cut their deficits.
Citigroup told investors today to exit a bet on the euro's advance after the currency dropped to a level where it initially advised the investment should be terminated.
The European Commission promised tighter monitoring measures of national economies in the eurozone are on the cards in the wake of the Greek crisis.
“The critical lesson from this crisis is that we urgently need deeper and broader surveillance of economic policies, including earlier detection and tackling of imbalances, in order to better safeguard the macro-financial stability of the euro area,” said EU Economic and Monetary Affairs Commissioner Olli Rehn.
“The Commission will soon come forward with proposals to further strengthen the co-ordination and the surveillance of national economic policies within the euro area.”
He said the 16 EU countries who have adopted the euro now had a shared responsibility for the currency’s stability, adding: “Our economic policies are a matter of common concern.”
Citigroup yesterday predicted the euro would keep falling.
"Only a new mechanism for working out sovereign bankruptcy and/or for conditional loan provision can sustainably eliminate the risk of contagion in the eurozone," Michael Hart, a foreign-exchange strategist in London, wrote in a report.
"With this not in sight, downward pressure on the euro is eventually set to return. International Monetary Fund participation could help alleviate such pressure in the short term, but has also proven elusive so far."
Agencies