The euro fell on Tuesday on a media report that Bundesbank lawyers were checking the legality of the European Central Bank bond-buying plan.
The euro was down 0.1 percent at $1.2920, having earlier dropped to $1.2886 on EBS trading platform. Further losses could see it target the 200-day moving average at $1.2827.
German tabloid Bild said the issue of whether the ECB’s plans to buy the bonds of indebted countries violates the ban in EU treaties on direct financing of state deficits could be referred to the European Court of Justice.
Although some analysts doubted any such legal challenge would go ahead they said it highlighted the lack of unity among eurozone policymakers.
“This is nothing of the magnitude of the German Constitutional Court decision. But when the eurozone’s most significant central bank is being skeptical it doesn’t encourage international investors to be holders of euros,» said Jeremy Stretch, head of currency strategy at CIBC.
The euro was also weighed down by Spain dragging its feet over requesting an international bailout. This must happen in order for the ECB to begin buying its bonds and, until it does, analysts say the euro is likely to weaken.
Last week, it hit a 4 1/2-month peak of $1.31729 on optimism as a result of the ECB plan and after the U.S. Federal Reserve announced aggressive quantitative easing.
“In the very short term the 200-day moving average is the obvious trigger point. If that gives way it could fall to $1.2760/70 and then we would be back to the pre-ECB rally levels,» CIBC’s Stretch said.
The euro was down 0.3 percent at 100.31 yen, having earlier dropped to 100.24 yen, its lowest since September 13.
Worries about the size of Greece’s deficit also weighed on the euro, with German’s Der Spiegel reporting it could be 20 billion euros, nearly double previous estimates.
“Fears about Europe’s situation remain among investors, with the focus mostly on Spain, but Greece is also still a concern,» said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo. [Reuters]