Euro slides to record low

The euro fell to a record low against the Swiss franc on Tuesday as eurozone government bond yields jumped on deepening concerns that the region's debt crisis would spread, prompting investors to dump the single currency for safer ones. The euro plunged 1 percent on the day to 1.1555 francs on electronic platform EBS. Against the dollar, it hit a four-month trough of $1.3837, with investors in the options market pricing in more downside risks for the common currency in coming days.
Mounting worries about the eurozone's ability to stem contagion risk drove hedge funds and other investors to the relative safety of the dollar, franc and yen, while high-yielding currencies including the Australian and New Zealand dollars took a hit. "Italy has moved very, very quickly to catch up with Spanish yields, and the market has woken up to the fact that there's a much larger problem. That's what precipitated the large fall (in the euro)," said Adam Myers, senior FX strategist at Credit Agricole CIB.
Analysts said the euro would continue to take a beating as yields rise in the wake of an emergency meeting by European financial officials on Monday, which failed to agree fresh action to tackle the region's debt problems. A eurozone diplomat said on Tuesday that EU leaders would hold an additional summit on Friday the discuss the debt crisis.
The euro was last trading at $1.3911, pulling away from lows on Asian sovereign demand and supported by results from an Italian bond auction where Rome was able to sell one-year paper, albeit at much higher yields. The euro clawed back above $1.3906, its 200-day moving average, which was seen as a key support level. Having broken below that level in earlier trade, a daily close below would signal more losses. Traders cited option expiries at $1.3900.
The euro has already shed more than 4 percent against the dollar this month, and market participants in London said there was a sense of panic on the trading floor. The latest selloff has contributed to a spike higher in market volatility, pushing one-month euro/dollar implied vol to around 15 percent, its highest since November 2010.
The premium on euro puts - the option to sell the currency - also jumped, with one-month 25-delta risk reversals hitting 3.3 vols in favour of puts, the highest in roughly a year. The selloff in risky currencies boosted the dollar by almost 1 percent versus a currency basket to 76.719, its highest in four months. It eased to 76.386 later in the session.
The franc and the yen also rallied, with the Swiss currency hovering around historic highs against sterling, while broad yen strength pushed the dollar down roughly 1 percent on the day to 79.17 yen, its weakest since mid-March. It was last trading at 79.64 yen, still down 0.7 percent on the day. The Australian dollar fell 1 percent versus its US counterpart, while the New Zealand currency fell 2 percent. Closely linked to commodity prices and seen as a barometer of risk demand, these currencies reversed gains made in previous sessions.