Euro slips in London

The euro fell on Thursday after a cut to Spain's credit rating reminded investors that eurozone debt problems will continue to haunt the currency, keeping it vulnerable to more downward pressure in the coming weeks. The euro hit the day's low around $1.3805 after Moody's downgraded Spain to Aa2 from Aa1 with a negative outlook, although sovereign demand and technical support buffered the currency against more intraday losses.
Near-term Fibonacci support was seen at the session trough, around the 38.2 percent retracement of the euro's rally in January-February, but its retreat from the psychologically key $1.40 level this week ultimately points to more euro downside. UBS FX analyst Geoffrey Yu said the Spanish downgrade showed the eurozone's debt crisis is far from over, and that investors have yet to fully acknowledge the risk of Europe's inability to agree a framework for a debt rescue fund this month.
Analysts said the possibility the European Central Bank may raise interest rates next month was containing a further slide in the euro for now. But they argued the euro could suffer if investors start to price in the prospect ongoing monetary tightening by the ECB is unlikely given that the euro zone economy is still struggling to recover.
By 1223 GMT, the euro traded at $1.3830, down half a percent on the day. Traders said that Mideast sovereign accounts picked up the euro after it hit the day's low, while bids from official Asian names were seen around $1.3800 and lower. Technical analysts saw trendline support for the euro around $1.3775, drawn from lows hit in January and February, but a fall below that open the door to more losses.
The euro's fall pushed the dollar index higher to trade with gains of around 0.3 percent on the day at 77.023. Against the yen, it edged up 0.2 percent to 82.92 yen. The single currency fell further from a four-month high of $1.4036 hit on Monday after last week's hawkish comments on inflation from ECB President Jean-Claude Trichet, which hinted at an interest rate rise in the euro zone as soon as April.
The Australian dollar fell after data showed China swung to a surprise trade deficit in February of $7.3 billion, its largest in seven years. The numbers stirred worries that China's growth could slow and affect countries such as Australia, which has benefited from China's expansion. The Aussie dollar was down around 0.6 percent at $1.0030. Sterling traded 0.3 percent lower at $1.6150, having slipped a touch after the Bank of England held interest rates at a record los 0.5 percent, as widely expected.