Tags: Dollar

Debt Woes Weigh on Euro as Canadian Dollar Surges

Wednesday, 21 Apr 2010 10:09 AM


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Public debt woes weighed on the euro Wednesday, while the dollar hit its lowest point in nearly two years against its Canadian counterpart on expectations for a summer rate hike by the Bank of Canada.

In morning trading in New York, the 16-nation euro fell to $1.3389 from $1.3423 late Tuesday as Greece's borrowing costs hit their latest record high. Anxiety over how to contain big budget deficits and ward off bond defaults by Greece and other euro-using European countries such as Portugal have weighed on the euro this year. Just last November, it traded above $1.51.

Greece has been raising money in bond sales, the yields demanded by investors have continued to rise despite a bailout plan agreed to earlier this month by the European nations and the International Monetary Fund. Greece on Wednesday begain two weeks of talks with the European Union, European Central Bank and IMF.

The bailout plan deals only with Greece's debt problems, and isn't configured to help other indebted European countries.

"With contagion clearly beginning to hit Portugal, the need for preemptive and bold action, larger than just the Greece situation appears beyond the reach and vision of European officials. This general backdrop is a weight on the euro," Brown Brothers Harriman analysts wrote in a research note Wednesday.

And the euro will likely fall further as long-term debt concerns persist. Ashraf Laidi, chief market strategist at CMC Markets in London, expects the euro to drop to $1.27 in the third quarter, which would be the weakest level since March 2009.

Meanwhile, the dollar tumbled versus the Canadian currency a day after the Bank of Canada signaled that it would be hiking interest rates soon as it boosted its economic forecast. The key Canadian rate is currently 0.25 percent, while the Federal Reserve is expcted to keep rates between zero and 0.25 percent until autumn.

"Many now see June 1 hike as a done deal" by the Bank of Canada, said Brown Brothers Harriman analyst Marc Chandler.

Higher interest rates tend to boost a currency.

The dollar sank as low as 99.31 Canadian cents, its weakest point since June 2008, in overnight trading. In morning trading in New York, the dollar fetched 99.59 Canadian cents from 99.85 Canadian cents.

In other morning trading, the British pound rose to $1.5398 from $1.5363, while the dollar slipped to 93.11 Japanese yen from 93.18 yen. The U.S. currency edged up to 1.0691 Swiss francs from 1.0685 francs.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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