[Theariwinna]

Euro falls amid continuing debt crisis fears

The euro declined as fears about the region's sovereign debt crisis continued to weigh on the single currency.



The euro sign outside the European Central Bank headquarters in Frankfurt. Photo: BLOOMBERG

3:14PM GMT 20 Dec 2010

The euro dropped to a two-week low against the dollar after the European Central Bank warned it had "serious concerns" about the laws governing Ireland's bail-out of its banking system.

The comments followed credit rating agency Moody's decision to slash Ireland's credit rating last week.

Investors also turned to German government bonds as a safe haven, sending the price up and the yield below 3pc for the second day in a row. The gap between the yield on German government bonds and their Irish and Portuguese equivalents widened.

The euro was down 0.2pc to $1.3158 in lunchtime trading, after falling as low as $1.3125.

The yield on 10-year German government bonds was 3pc, compared with 8.65pc on Ireland's 10-year bonds.

The cost of insuring French government debt rose to a record, as some traders speculated the country could be at risk of losing its AAA credit rating.

A string of neagtive announcements from the ratings agencies about various eurozone countries' debt levels have added to the pressure caused by the bail-outs of Greece and Ireland.

Moody's also said last week it may downgrade Spain's credit rating again. However the Organisation for Economic Cooperation and Development (OECD) said today that Spain will meet its deficit reduction goal next year, even if growth does not meet the 1.3pc target set by the government.

The OECD also said it doesn't believe that government support for the country’s banks would put the Spain's solvency at risk.