The euro declined, hitting its lowest level against the greenback this year as a bigger-than-expected decline in German investor sentiment added to woes inflicted by flagging market confidence in Greek public finances. The single currency traded below $1.43, beneath its 200-day moving average and also hit a four-month low against sterling after Kraft Foods agreed to buy British chocolate-maker Cadbury Plc, increasing demand for pounds. Analysts said concerns about Greece and other European union members' ability to deal with swelling budget deficits combined with lacklustre growth will weigh on the euro.
"Sovereign credit risk is a major drag for the single currency and will be well into 2010," said Omer Esiner, an analyst at Travelex Global Business Payments in Washington. In late afternoon trading in New York, the euro was trading at $1.4283, down 0.6 percent. Traders said a close below the 200-day moving average of about $1.4290 could open up fresh euro selling when Asian markets open on Wednesday.
"That would be an extremely strong signal that the market will want to test levels much lower," said Dean Popplewell, chief strategist at OANDA, an FX brokerage in Toronto. "We could hit the $1.30s much sooner than people think." The euro changed hands at 130.29 yen, down 0.2 percent, while against the pound, it fell to a four-month low earlier of 87.16 pence. News of a rise in UK inflation also boosted sterling, which rose 0.2 percent to $1.6370.
But the pound trimmed some gains versus the dollar after Bank of England Governor Mervyn King said Britain faces a "long period of healing." The dollar got a boost after Treasury data showed net capital inflows to US assets rebounded in November. It was last up 0.4 percent at 91.11 yen, well off an earlier four-week low of 90.32 following news that Japan Airlines would file for bankruptcy protection from some $25 billion in debt.
The greenback also rose 0.4 percent against its Canadian counterpart to C$1.0305 after the Bank of Canada held rates steady and slightly lowered its growth outlook, saying a strong currency remains a risk to recovery. The Australian dollar fell 0.2 percent to $0.9244 as China's central bank stepped up efforts to tighten liquidity by lifting auction yields on one-year bills for the second week in a row. Any slowdown in Chinese growth is seen hurting Australian assets.