Euro plumbs fresh nine-month lows against dollar
LONDON: The euro, already weakened because of Greece's debt crisis, hit fresh nine-month lows against the dollar on Friday after a surprise change to the US Federal Reserve's monetary policy, analysts said.
The European single currency fell as low as 1.3443 dollars overnight, striking the lowest level since May 18.
In morning London trade it stood at 1.3504 dollars, down from 1.3535 dollars in New York on Thursday.
Against the Japanese currency, the dollar eased to 91.73 yen from 91.75 yen on Thursday.
The dollar jumped sharply after the Fed said it was raising the interest rate it charges on emergency loans to banks, a surprise move seen as the start of an exit strategy from its massive stimulus programme.
The hike sparked speculation that a rise in the main Fed funds rate might be closer than previously thought, boosting the dollar on hopes of an increase in yields on US financial assets.
"Last night's Fed decision has seen the euro hit its lowest levels since last May as it broke below the key 1.3485 level in Asia trading," said analyst Michael Hewson at financial betting firm CMC Markets.
"The market's reaction would suggest that this could be the signal for further tightening and that the Fed Funds rate could well be next," he said.
"It also signifies an important point in the recovery with respect to the long awaited beginning of the withdrawal of stimulus measures to support the economy."
The Fed has taken a step closer to exiting its emergency measures taken during the financial crisis, Hiroshi Maeba, director of forex at Nomura Securities, told Dow Jones Newswires.
"That definitely does not help the yen because it highlights how the Bank of Japan will trail behind the Fed" in tightening monetary policy, Maeba added.
But dealers said the dollar might not rise much further in the near term because market participants are likely to take profits on the gains so far.
"The upside effect from the Fed's move will soon die down," said Masatsugu Miyata, forex dealer at Hachijuni Bank.
The euro, however, is seen as likely to remain pressured by worries that eurozone countries such as Portugal, Ireland, Italy, and Spain could suffer similar fiscal problems as eurozone member Greece.
In London on Friday, the euro was changing hands at 1.3504 dollars against 1.3535 dollars on Thursday, at 123.87 yen (124.17), 0.8778 pounds (0.8710) and 1.4650 Swiss francs (1.4652).
The dollar stood at 91.73 yen (91.75) and 1.0848 Swiss francs (1.0821).
The pound was at 1.5383 dollars (1.5537).
On the London Bullion Market, the price of gold fell to 1,108.55 dollars an ounce from 1,118 dollars an ounce on Thursday.