Renewed worries about Greek debt and another sell-off in the commodities market drove the euro sharply lower on Wednesday, with more losses likely as investors grow skittish over the currency's sudden retreat. The eurozone common currency dropped to a three-week low against the US dollar, firmly breaking below its 50-day moving average around $1.43, which traders are likely to take as a sign of more losses to come.
The euro's drop, just a week after it hit a 17-month high versus the dollar above $1.49, accelerated after steep losses in stocks and commodities led to a stampede for the safe-haven dollar. Speculation over whether Greece will receive more bailout funding kept risk appetite volatile as investors continued to price in a high probability that the country will eventually need to restructure its debt. The euro last traded down 1.4 percent on the day at $1.4201 after hitting a session low of $1.4172 on trading platform EBS, the lowest since April 18.
Analysts said long euro positioning has reached stretched levels in recent weeks, making the currency vulnerable to a pullback. Speculators increased bets in favour of the euro to the highest since July 2007 in the week ended May 3. A move lower could test support around $1.4150 - near the mid-April low and a 38.2 percent retracement of the January-May rise at around $1.4145. Euro crosses were dumped after a deep fall in US gasoline futures fuelled the second major sell-off in the oil market in a week, hitting riskier assets across the board.
Weakness in the euro helped push the dollar index, which measures the greenback against a basket of major currencies, to 75.308, up 0.9 percent on the day. Against the yen, the dollar rose 0.2 percent to 81.01 yen. Commodity-linked currencies dropped, with the Australian dollar down 1.3 percent and the New Zealand dollar down 0.9 percent. Senior EU and IMF inspectors met Greek Finance Minister George Papaconstantinou at the start of a visit to Athens to press Greece to shore up its finances one year into the EU/IMF deal.
Comments from a German deputy finance minister that euro zone officials will debate Greece's debt crisis next week but that no decision will be taken added to jitters.
Greece is not the only source of worry for investors, with Finland delaying a parliamentary vote on the EU's Portugal bailout plan to Friday because the country's second-largest party remained undecided. The leader of Finland's third-biggest party reiterated his opposition to Portugal aid.
Traders are weighing the eurozone's troubles against another big theme that has driven the market this year - dollar weakness stemming from the Federal Reserve's reluctance to raise interest rates from near zero. Sterling hit its highest since March 24 against the euro after the Bank of England raised its medium-term inflation forecasts, with markets now expecting a UK rate hike by year-end.