NEW YORK: The dollar gained on Monday, pushing the euro to near an 11-month low, on concerns the euro zone debt crisis will weigh on global economic growth and as uncertainty after the death of North Korean leader Kim Jong-il supported a safety bid for the dollar.
A warning by Fitch Ratings on Friday that it could downgrade France and six other euro zone countries and a ratings cut by Moody's on Belgium, also on Friday, added to pressure on the euro.
European Central Bank President Mario Draghi did stocks and the euro no favors when he highlighted downside risks to the economy and poured cold water on hopes for aggressive bond-buying in testimony to the European Parliament on Monday. .
Asian-Pacific currencies such as the Australian and New Zealand dollars came under pressure on Monday after North Korean state television reported the death of Kim Jong-il, raising questions over who is in real control of the nuclear renegade state.
"The euro bias is to the downside given the warnings we had on Friday," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "But barring any new impetus to push the euro lower it should hold above $1.2940, the recent low."
The euro was down 0.1 percent at $1.3018 against the dollar, within a cent of the 11-month low touched last week. The low on Monday posted at $1.2980, according to Reuters data, earlier in the global trading day.
The euro remains highly vulnerable to more ratings downgrade in the European Union after EU leaders failed to come up with a convincing solution to the debt crisis at a summit earlier this month.
Traders said a break of last week's low would open up a possible test of the 2011 trough around $1.2860. Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank in London, said, however, that a lot of bad news was already reflected in the price of the single currency.
The common currency was also under pressure against the Swiss franc, down 0.1 percent at 1.2189 francs after breaking below support at the 200-day simple moving average. The Swiss National Bank left its cap on the currency unchanged at 1.20 francs last week.
The euro did pare some losses against the franc after Swiss National Bank Chairman Philipp Hildebrand said on Swiss TV that the central bank would do all it can to defend the exchange rate, though that impact was fleeting.
The dollar was flat against the franc, but gained 0.2 percent against the yen to 77.95 yen.
The Australian dollar was last down 0.6 percent at $0.9912 while the New Zealand dollar was down 0.5 percent at $0.7567.
"Regional currencies remain pressured, but so far is there no long-term implication" of Kim Jong-il's death, said Esiner.
RALLIES SHORT-LIVED
Net-short euro contracts are at a record high using Commodity Futures Trading Commission data tabulated to Dec. 13 and released on Friday, though analysts were divided on what that may mean for the single currency. The last time euro net short positions were at a record on a contract basis was in May 2010, when the euro was near $1.21 and fell around another 2 cents over the next month.
"With net euro shorts at record highs while the euro/dollar is only at 11-month lows, the currency's downside potential remains ample," said Ashraf Laidi, chief executive at Intermarket Strategy Ltd in London.
On the other hand, Andrew Wilkinson, chief economic strategist at Miller Tabak & Co, said the lack of downside follow-through for the euro suggests that the currency has more potential to rebound sharply as investors wind down for the holiday season.
But with EU leaders still searching for a credible long-term solution to bolster the euro, any rallies are simply expected to provide selling opportunities.
"I can't see any euro rallies lasting for long," said Gavin Friend, currency strategist at NAB Capital in London.
"The market can to some extent deal with a lower growth profile, but what it cannot manage is the ongoing policy paralysis in the euro zone," he added.
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