The euro wobbled on Wednesday after Moody’s downgraded Portugal’s debt rating by two levels, highlighting concerns that European officials will not be able to prevent a wider sovereign debt crisis.
Moody’s cited implementation risks for Portugal’s ambitious fiscal consolidation targets.
Debt-ridden Portugal, Greece, and Ireland are in a difficult position — failure to produce sweeping fiscal reforms will upset the bond markets, but cuts cutting will likely result in uncompetitive levels of economic growth.
Portugal was able to auction off 1 billion euros of bonds due in 2012, at higher borrowing costs.
The euro eased to $1.3920 versus the dollar, after challenging a recent 4-month high of $1.4035 in the previous session.
The dollar firmed amid the release of data showing U.S. producer prices increased by much more than expected in February. The Labor Department said its producer price index jumped by 1.6 percent in February following a 0.8 percent increase in January.
Eurozone inflation breached the European Central Bank (ECB) target for a third straight month in February due to higher energy prices.
Consumer price index (CPI) rose 2.4 percent year-on-year, following a 2.3 percent increase in January, European Union Statistical agency Eurostat said Wednesday, confirming a preliminary report
Commodity price inflation is putting some pressure on the Federal Reserve to scale back its quantitative easing program.
The euro slipped a bit versus the sterling, easing to GBP 0.8670 from this week’s 4-month high of 0.8708.
Meanwhile, the euro eased to Y113.50 versus the yen amid increased risk aversion and as funds were repatriated back to Japan.
Japan says a second nuclear reactor may have ruptured with a radioactive release, aggravating the nation’s attempts to handle a nuclear crisis brought on by Friday’s earthquake.