LONDON, Dec 10 – The euro wilted against the dollar Wednesday on a day of rising concern that Greece\’s severe debt burden and lowered credit ratings could herald similar problems elsewhere in the eurozone.
Euro sentiment was dampened in the aftermath of a move by Fitch Ratings to lower its sovereign credit rating on Greece, which followed a warning earlier in the week that Standard & Poor\’s could take similar action.
S&P on Wednesday lowered its rating outlook on another eurozone member, Spain, to "negative" from "stable," warning that the country faced a "prolonged" period of sluggish economic growth.
The agency on Monday lowered its assessment to "negative" from "stable" on Spain\’s neighbor and fellow eurozone member Portugal.
In such a climate, the euro was down to 1.4695 dollars in late-day trade after 1.4703 late Tuesday in New York.
The dollar was meanwhile trading at 87.85 yen after 88.38 on Tuesday.
"The key questions now being asked are: will the rest of Europe have to help Greece out, and will Greece be the beginning of other debt downgrades across Europe?" said analyst Michael Hewson of CMC Markets.
Stuart Bennett of Calyon highlighted the dilemma facing eurozone countries that have run up debt, after spending heavily to combat recession, and where economic recovery remains fragile.
"To remedy the situation these countries need to cut spending and/or hike taxes, which would have negative consequences for their already weak economies."
He warned that if "fiscal problems escalate in these countries, … at some point analysts and the media will return to question the feasibility of the EMU (European Monetary Union) as a whole."
"Hence the euro will depend on whether yesterday\’s action (the Greek downgrade) sparks a domino effect that leads to downgrades for other eurozone countries, or even dare I say it, the UK.
The Greek government on Wednesday acknowledged the gravity of the country\’s financial situation and pledged tough action to curb spending and restore confidence.
"Comments from the Greek finance minister this morning reassured the markets that there was no risk of default," said Jane Foley of Forex.com.
"It is yet unclear how the Greek government will make the necessary fiscal adjustments, if indeed it can. The longer this uncertainty persists, the greater the risk of volatility being injected into the euro."
In London on Wednesday, the euro was changing hands at 1.4695 dollars against 1.4703 dollars late on Tuesday, 129.11 yen (129.95), 0.9068 pounds (0.9025) and 1.5112 Swiss francs (1.5098).
The dollar stood at 87.85 yen (88.38) and 1.0268 Swiss francs (1.0268).
The pound was at 1.6207 dollars (1.6286).
On the London Bullion Market, the price of gold fell to 1,141 dollars an ounce at the fixing from 1,146.75 dollars late on Tuesday.
