New York: The euro is likely to post further losses in the coming week after it dropped on Friday to its lowest against the US dollar in nearly 17 months and tumbled to an 11-year low versus the yen following a downgrade in credit ratings of nine Eurozone countries.
As widely expected, Standard and Poor's said it has downgraded the credit ratings of Eurozone countries led by France, Spain, Italy and Austria. S&P, however, left Germany's triple A rating unchanged, with a stable outlook.
Speculation about the downgrade roiled the currency market earlier in the session, and the actual ratings news provoked little market reaction.
But analysts said the more serious blow to the euro's cause was the breakdown in talks between Greece and its creditor banks to slash the country's huge debt. Greece has warned of "catastrophic" results if a deal to swap bonds is not reached soon.
"The downtrend in the euro is not complete and even though short positioning in the euro is at extreme level, not all segments of the investment community is short and so there is scope for further falls," said Richard Franulovich, senior currency strategist at Westpac in new York.
He sees the euro possibly hitting $1.25 (Dh4.6) by the end of this week, with a target of between $1.21-$1.22. "I suspect that Asia will sell the euro straight out of the gate on Sunday evening," Franulovich said.
Greek default
The Westpac analyst also said with the breakdown in Greek talks, "Greece would probably be the first developed country to default in 60 years".
The euro plunged to a low of $1.26240, its weakest level since late Aug-ust 2010, on trading platform EBS. It last traded at $1.26830, down 1.1 per cent on the day. The euro, down slightly on the week, posted its third straight weekly loss, based on EBS data.
The single Eurozone currency also fell to 97.200 yen, its lowest since 2000 and last changed hands at 97.584, down 0.9 per cent.
