Euro slumps on France rating concern, yen rallies

NEW YORK: The euro tumbled against the dollar on Wednesday as concerns grew that France could be the next AAA-rated country to be downgraded after the US debt rating was cut last Friday.

The euro zone common currency stayed sharply lower even after Moody's ratings agency reiterated France's AAA rating with a stable outlook. Standard & Poor's, which cut its US credit rating by a notch to AA-plus on Friday, said on Tuesday it considers the rating outlook for France to be stable.

The Swiss franc fell against the dollar, though it resumed gains versus the euro after the Swiss National Bank said it would significantly boost franc supply in the coming days in a bid to stem the currency's rally to record highs.

But analysts said the SNB's measures would do little to halt exceptionally strong demand for the safe-haven franc after the Federal Reserve on Tuesday underlined the state of the struggling US economy and promised to hold interest rates low for at least two years.

"Markets are still a little bit nervous and there is still pretty high correlation between the equity markets and movements in the currency market," said Mark McCormick, currency strategist at Brown Brothers Harriman in New York. "Weakness in sentiment is still weighing on risk appetite."

The euro last traded down 0.9 percent at $1.4235, after sliding to a session low of $1.42080 on trading platform EBS. It also lost 1.8 percent to 108.83 yen.

Against the Swiss franc, the dollar rose 0.8 percent to 0.7282, but the euro dropped 0.3 percent to 1.0355. Both the euro and dollar fell to record lows against the franc on Tuesday.

The dollar fell sharply against the yen, last trading down 0.9 percent at 76.41. It hit a session low of 76.347 on EBS, close to its record low hit in March of 76.25 and keeping investors wary that Japanese authorities may step in again to stem gains in the currency.

Sterling fell after the Bank of England cut its growth and inflation forecasts in its latest inflation report. It was last down 0.8 percent at $1.6183.

Copyright Reuters, 2011