The euro hit a four-month low against the dollar and another record low against the Swiss franc on Tuesday on fears eurozone leaders were failing to prevent a debt crisis from spreading. Borrowing costs for Italy and Spain soared to 14-year highs as eurozone leaders conceded for the first time that Greece may have to default on some of its debt.
Investors fear that could ripple through Europe's banking system, putting pressure on stretched public finances in other eurozone countries. Italy, the eurozone's third largest economy, looks especially vulnerable: its debt-to-output ratio is second only to Greece and markets fear political bickering may derail a plan to slash spending and rein in the deficit.
The euro fell as low as $1.3835, a four-month low, though data showing a wider US trade deficit and talk that the ECB was buying eurozone debt sparked a short-squeeze that lifted it to $1.3989, down 0.3 percent from late Monday. The yen, also considered a shelter from the storm, rose broadly, The dollar fell 0.9 percent to 79.47 yen, near its lowest since March. The euro shed 1.2 percent to 111.23 yen.
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