The euro sank to a four-month low against the dollar, heading for its biggest weekly drop since January, after Moody?s Investors Service downgraded 16 Spanish banks, underscoring concern that Europe?s turmoil is worsening.
The 17-nation currency declined to the weakest in three months versus the yen and headed for a fourth weekly decline against Japan?s currency after Fitch Ratings downgraded Greece?s long-term credit rating, citing heightened risk that the nation will exit the monetary union. The dollar and the yen advanced against most of their major peers as demand for the safest assets increased. The Australian and New Zealand dollars declined for a sixth day.
?Greece is in trouble and that is pushing the euro lower,? said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. ?The real issue is contagion to Spain. The markets can probably start to stabilize sometime soon, there is a lot of bad news priced in and we are near a lot of key technical levels in euro-dollar.?
The euro reached $1.2642, the weakest since Jan. 16, before trading 0.2 percent lower at $1.2671 at 9:10 a.m. London time. Europe?s shared currency slid 0.1 percent to 100.55 yen after earlier touching 100.21, the lowest since Feb. 6. The dollar was little changed at 79.31 yen from 79.28 Thursday, when it dropped to 79.14, the weakest since Feb. 17.
The euro has fallen 1.9 percent against the greenback since May 11, a third weekly loss that?s the longest stretch since Jan. 13. It has lost 2.6 percent versus the yen for a fourth weekly slide.
The Australian dollar slid 0.6 percent to 98.34 US cents, poised for a 1.8 percent drop this week. New Zealand?s dollar headed for 3.4 percent decline since May 11, and retreated 0.9 percent to 75.63 US cents from Thursday.
Moody?s Investors Service lowered the credit ratings of 16 Spanish banks Thursday, including Banco Santander SA (SAN), citing economic weakness and the government?s mounting budget strain. The reductions followed Moody?s May 14 rating downgrade of 26 Italian banks and its Feb. 13 cut of Spain?s sovereign debt.
Greece?s lower rating came as leaders began campaigning ahead of the second national vote in six weeks.
?The strong showing of ?anti-austerity? parties in the May 6 parliamentary elections and subsequent failure to form a government underscores the lack of public and political support? for the country?s bailout from the European Union and International Monetary Fund, Fitch said in a statement Thursday.
The Stoxx Europe 600 Index dropped 0.8 percent, extending its weekly decline to 4.8 percent.
?The market?s very concerned about contagion and Spain probably being the biggest focus of attention after Greece,? said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. ?If the euro breaks $1.26, there?s probably not a lot of stops going to the lows that we saw in 2010.?
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major US trading partners, climbed 0.1 percent to 81.592, its 15th day of gains, the longest winning streak since its inception in 1973.
The index?s ?rally phase? is here to stay, according to Niall O?Connor, a technical analyst at JPMorgan Chase