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Euro foreign exchange rate racks up losses against Greece

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The euro’s foreign exchange rate racked up losses against most major currencies on Thursday and slipped below the psychologically significant $1.30 level against the US dollar as confusion about Greece’s bailout package rattled investor nerves.

The single currency traded as low as $1.2983 compared to $1.3106 late Wednesday in New York. At A$1.2149, it was also close to the lowest levels against the Australian dollar since the common currency’s inception.

Yields on struggling euro-area government bonds also rose, with both Spanish and Italian borrowing costs ticking higher in early trading. The decision by Moody’s Investors Service Inc. to place 114 European financial institutions on review for downgrade late Wednesday also added to the negative tone in markets.

The teleconference of European finance ministers Wednesday yielded only sound bites and no firm agreement had been made on a bailout that Greece must receive my mid-March to avoid a debt default. The next meeting is scheduled for Monday, where investors are hoping for some clarity on the timetable and method of administrating Greece’s latest crucial aid tranche.

“Failure to secure a deal at the Eurogroup meeting could unleash another wave of euro selling given markets are taking a dim view of Greece entering election season without funding,” analysts at ING Bank NV wrote in a note to clients. Greece is scheduled to hold its election in April, but some proposals from Europe now suggest that the full aid package might not be paid until after the vote. In the meantime, a bridging loan could be extended to the country to stave off default.

Many currencies analysts agreed Thursday that $1.26, the euro’s lowest point of the year so far could be the next point of support.

“The Greek situation will weigh on the euro,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. “There seems to be doubt among major economies about Greece’s ability and commitment in implementing the austerity program. The fact that short euro positions had recently been lightened up makes the currency vulnerable to a sell off.” A short position is a bet an asset will fall.

The euro’s foreign exchange rate declined 0.5 percent to $1.3001 at 6:55 a.m. in New York after sliding to $1.2983, the lowest level since Jan. 25. The common currency dropped 0.1 percent to 102.36 Japanese yen after falling 0.5 percent yesterday. The US dollar appreciated 0.4 percent to 78.71 yen.

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