Euro Near 1-Year Low on Concern Europe's Debt Crisis Will Widen

LONDON, Apr. 29 -- The euro traded near a one-year low against the dollar as concern Europe's deficit crisis will widen boosted demand for the U.S. currency as a refuge.

The yen and dollar strengthened against most major currencies after Standard & Poor's reduced Spain's credit rating yesterday and signaled the 16-nation region's debt problems are spreading. The dollar rose against 14 of its 16 major counterparts before a U.S. report that may show the number of Americans filing claims for unemployment benefits fell last week, adding to signs the world's largest economy is recovering.

"Lingering fears of a further deterioration in the European sovereign debt crisis may weigh on risk sentiment," said Mike Jones, a currency strategist Bank of New Zealand Ltd. in Wellington. "Against this backdrop, ‘safe-haven' currencies such as the dollar and the yen may extend their recent gains."

The euro traded at $1.3197 as of 9:01 a.m. in Tokyo from $1.3221 in New York yesterday, when it fell to $1.3115, the lowest level since April 28, 2009. The single currency was at 124.03 yen from 124.32 yen. The dollar bought 94.03 yen from 94.03 yen, and was at $1.5196 per pound from $1.5209.

Europe's single currency weakened versus 12 of its 16 most- active counterparts after S&P lowered Spain's credit rating to AA from AA+ with a negative outlook. The company also this week cut Greece's credit rating to junk and reduced Portugal's to the third-lowest investment grade.

Spain's Rating

S&P's reduction in Spain's rating came as European Union policy makers pushed to speed distribution of 45 billion euros ($59.4 billion) in emergency aid already pledged to Greece by the euro area and the International Monetary Fund on April 11.

The extra yield investors demand to hold Spain's 10-year debt rather than German equivalents reached 112.5 basis points this week, the highest in more than a year. S&P said the increase in Spain's borrowing costs and a recession that would likely be prolonged would make it difficult to reduce a deficit that reached 11.2 percent of gross domestic product last year.

"Growing pessimism on the medium-term outlooks for euro- zone economies, higher borrowing costs and continued indecision will keep weighing on the euro," Brian Kim, a currency strategist in Stamford, Connecticut, at UBS AG, wrote in a research note yesterday.

The Dollar Index was near an 11-month high before a Labor Department report today that economists said will show initial jobless applications dropped by 11,000 to 445,000.

Fed Statement

The Federal Reserve said in its statement yesterday that the labor market is "beginning to improve." The central bank kept its target lending rate in a range of zero to 0.25 percent at the end of its two-day policy meeting, as forecast by all economists surveyed by Bloomberg News.

"The Fed's assessment of the economy is a bit more upbeat," said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington. "This may add further weight to the belief that the dollar has further strength to come, potentially at the expense of the euro."

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, was at 82.328 from 82.381 yesterday, when it rose to 82.714, the strongest since May 2009.