The euro fell to its lowest level in more than eight months against the dollar on Monday, as fears of a Greek default deepened after the debt-ridden country said it will not meet the deficit target set out under its bailout plan. The single eurozone currency posted its largest one-day loss since September 9, according to trading platform EBS.
Adding to negative sentiment and the market's risk-averse mood was a decision by Moody's to place French-Belgian financial services group Dexia on review for possible downgrade. Dexia has been undermined by its exposure to Greece, raising pressure on its state shareholders to consider a second bailout.
The euro's losses partly reflect that "there has not really been any resolution on the EU side with Greece and their approved budget misses the targets it needs to achieve," said Alex Sinton, senior dealer at ANZ Institutional in Auckland, New Zealand. Greek officials said the country will not meet its deficit target for 2011 even as it imposes austerity measures to boost revenue and cut future borrowing needs, which are requirements imposed by the European Union and the International Monetary Fund for disbursement of more cash to pay maturing debt.
Without the funds, Greece will likely default, a scenario that is being increasingly priced in by the market. In late afternoon trading, the euro was down 1.5 percent at $1.31919, after falling as low as $1.31820 - its lowest point since mid-January. Even so, technically, the euro looked "a little over-extended," said ANZ's Sinton, who said it could retrace losses and potentially rise in the Asian session to the $1.3310 area.
Against the yen, the euro was down 1.6 percent at 101.500 yen. Earlier it touched a low of 101.400, the lowest since at least 2004 on EBS. Eurozone finance ministers met on Monday and were expected to put pressure on Greece to implement agreed structural reforms and to discuss options for leveraging the European Financial Stability Facility, the bailout fund.
Kathy Lien, director of FX research at GFT in Jersey City, New Jersey, said she was not confident anything of substance would come out of the meeting. Investors are also awaiting a European Central Bank interest rate decision on Thursday. Some market players expect the ECB will cut rates by 25 basis points and announce fresh liquidity measures to support the banking sector.
Speculators have also been adding to bearish bets against the euro, a trend that is likely to continue. In other currency pairs, the dollar eased 0.6 percent against the yen to 76.620 yen, after hitting a two-week high at 77.27 yen on EBS. Orders are seen around 77.50, traders said.