The euro fell to $1.3938, its worst showing since mid-July, as investors worried Greece may not be able to service its debt, putting pressure on the euro and raising fears the country could be forced out of the euro zone. The euro last traded at $1.3962, down 0.4 percent on the day.
Germany and France denied a report suggesting an imminent European Union bailout for Greece, while Athens said it had not requested help and was the victim of speculators intent on attacking it as the euro zone's "weak link." Adding to pressure on the euro were warnings by credit ratings agencies that Portugal needs a clear plan for further budget cuts beyond 2010 to prevent debt rating downgrades.
"There are a lot of troubling debt situations in Europe, in Greece and beyond, and that is hurting the euro," said Melvin Harris, strategist at Easy Forex in New York. The premium that investors demand to hold Greek government bonds rather than benchmark German Bunds rose to its highest level since the euro was launched more than a decade ago.
The cost of insuring Greece's sovereign debt against default also hit a record high. Debt worries could push the euro as low as $1.35 in the coming weeks, Harris said, while sterling, which fell 0.3 percent to $1.6120 suffered after Standard & Poor's said Britain's banking system was no longer one of the world's most stable. The US dollar fell 0.1 percent to 89.90 yen as losses on Wall Street prompted investors to close riskier trades financed by cheap borrowing in the yen. The euro dropped 0.5 percent to 125.52 yen after hitting a nine-month low of 125.07 yen.
Some analysts said the Greek debt worries were overdone and that the euro was just staging a technical retreat after running up strongly in 2009, when it topped $1.51. Investors appear to be "using the Greece thing as an excuse to just do a correction of the currency's run since March last year," said Chuck Butler, president of Everbank World Markets in St. Louis.