London - The euro slumped on Monday on concerns that the Irish debt crisis will spread while a rating downgrade for Hungary unsettled nervous markets waiting for a lead from eurozone finance ministers.
Dealers said investors were hoping for some convincing lead from a regular meeting of the finance ministers where some called for a rescue fund for weaker member states to be dramatically increased in size and scope.
Some also want to see the formation of a European bond market, where national identities would be subsumed so as to ease current funding problems, but Germany insists that that is only possible if all states follow the same, very strict fiscal policies as it does.
In late London trade, the European single currency slumped to 1.3283 dollars from 1.3415 dollars in New York late Friday.
Against the Japanese currency, the dollar rose to 82.68 yen from 82.58 yen on Friday.
Eurozone finance ministers meeting in Brussels were facing up to deep disagreement over what to do next to tame the debt crisis that earlier this month claimed Ireland as its latest victim and now threatens to spread.
Analysts fear that Portugal could be next in line for a bailout, with Spain coming into the firing line.
GFT analyst David Morrison said there was some “expectation that they will look to boost the EU/IMF bailout facility.”
“In addition, the Irish government will attempt to get approval for its 2011 budget (unveiled on Tuesday). So all eyes will be on the euro/dollar.”
Jean-Claude Juncker, head of the Eurogroup of finance ministers, and Giulio Tremonti, Italy's finance minister, called for the rapid introduction of “E-bonds” in a joint article in Monday's Financial Times.
The duo wanted to send a message to markets and European citizens about “the irreversibility of the euro” and said the plan would lead to a “liquid global market for European bonds” which would help protect countries from speculation and attract new capital flows into Europe.
“Eurozone politicians clearly understand that the structural integrity of EMU (European Monetary Union) needs to be bolstered,” said Rabobank analyst Jane Foley.
“Unfortunately, there appear to be broad divisions as to how this can be achieved ... There will be concerns that some countries will hide behind E-bonds rather than maintain budgetary prudence.”
Ahead of the meeting, Moody's slashed Hungary's ratings, citing “increased concerns about the country's medium- to long-term fiscal sustainability.”
Hungary is an EU member but not part of the 16-nation eurozone and the action highlighted the problems facing some of the bloc's newer member states.
The dollar also found some support in weekend comments from Federal Reserve Chairman Ben Bernanke who indicated that the US central bank could ramp up its efforts further, if needed, to combat stubbornly-high unemployment.
In London late Monday, the euro changed hands at 1.3283 dollars against 1.3415 dollars late in New York on Friday, at 109.83 yen (110.86), 0.8468 pounds (0.8500) and 1.3075 Swiss francs (1.3074).
The dollar stood at 82.68 yen (82.58) and 0.9841 Swiss francs (0.9739).
The pound was at 1.5687 dollars (1.5775).
On the London Bullion Market, the price of gold climbed to 1,415.25 dollars an ounce from 1,403.50 dollars an ounce late on Friday. - Sapa-AFP
