The euro sank to a 14-month low below $1.27 on Thursday as markets expressed their lack of confidence in European leaders’ ability to contain the debt crisis.
- Source: Yahoo
The European Central Bank did not offer more support to European countries struggling with debt and left interest rates unchanged at 1 percent.
The euro has been battered this week, dropping as much as 6 cents, or 4.5 percent, on fears that a planned euro110 billion ($140 billion) bailout for Greece will not help the country manage its debt load in the long term, and that more aid may be needed for Portugal and Spain to keep from defaulting as bonds come due, borrowing costs remain high and their economies stagnate or decline.
It has been the sharpest weekly drop for the euro since October 2008, when the financial crisis drove investors to the safety of the dollar.
“There’s a real problem in Europe…(and) there isn’t an effective means to address the crisis,” said David Gilmore of Foreign Exchange Analytics in Essex, Conn. “As long as this crisis is burning out of control you can count on the dollar being strong.”
In midday trading in New York, the euro plunged to $1.2687, its weakest point since March 2009. “I wouldn’t rule out a move towards parity,” Gilmore said. One dollar could buy one euro in as little as a few weeks because European policymakers seemed unable to keep ahead of the spiraling debt problems, he said.
On Thursday, the European Central Bank said it would not take any extraordinary steps to help support indebted countries using the euro, as markets had hoped it would. The president of the European Central Bank, Jean-Claude Trichet, said that the bank did not even discuss buying government bonds on the market. He also said there was no dicussion of an orderly default mechanism for the 16 countries using the euro.
European politicians and banking officials have been “very reactive,” said Win Thin, senior currency strategist at Brown Brothers Harriman. If they’d moved to help Greece in January, borrowing costs for other countries might not have taken off. At this point, the countries using the euro might not have the resources to give Portugal and Spain bailouts if they need it, Thin said.
In other trading in New York, the British pound dropped to a two-month low of $1.4927 from $1.5101. The dollar rose to 1.0393 Canadian dollars from 1.0314 Canadian dollars, and gained against other currencies of countries that are big commodity exporters, such as Brazil and Australia, as prices of oil, gas and some metals fell.
The dollar fell to 93.12 Japanese yen from 93.65 yen and tumbled to 1.1084 Swiss francs from 1.1169 francs. Investors view the dollar, Swiss franc and yen as relatively safe assets.
