Euro falls as debt concern persists on Portugal woes
Published 26/03/2011 | 05:00
THE euro slumped against the dollar as European Union leaders cut the start-up capital for a programme for future emergency aid, stoking concern about governments' efforts to quell the debt crisis.
The currency fell from almost its highest level in four months against the dollar as a major European clearinghouse said Portuguese government bonds will no longer be eligible as collateral in certain transactions from Monday.
"Portugal doesn't seem like a domino, but there's still a bit of uneasiness," said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. "It seems the downside is being limited by European Central Bank expectations."
The euro fell 0.6pc to $1.4088 in New York, from $1.4177 on Thursday. It rose 0.2pc against the yen from 114.79. The yen weakened 0.5pc to 81.34 per dollar, from 80.97
The euro extended losses after Federal Reserve Bank of Philadelphia president Charles Plosser said the improving economy means policy makers should detail a plan for withdrawing record monetary stimulus.
The central bank should set a pace for selling its mortgage and Treasury holdings in conjunction with raising interest rates, Plosser said in a speech in New York.
EU leaders pared the fund's paid-in capital as of 2013 to €16bn, less than the €40bn foreseen in a March 21 accord. German Chancellor Angela Merkel said it will take the euro years to recover from the "sins of the past."
LCH Clearnet Ltd, Europe's biggest clearing house, said Portuguese government bonds will no longer be eligible for delivery in any of its RepoClear euro general collateral baskets after the nation's debt was downgraded by Standard & Poor's yesterday.
"The European debt situation is still the main focus for the markets," said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London.