The euro fell across the board on Friday after Fitch Ratings downgraded Spain's credit rating, rekindling concerns about a sovereign debt crisis in the euro zone.
The euro was on track for a hefty 7.7 percent decline in May, in what would be the sixth consecutive monthly fall and the biggest percentage drop since January 2009.
Fitch cut Spain's credit rating by one notch to AA-plus, saying the country's economic recovery will be "more muted" than the government forecast due to its austerity measures. The outlook on the new rating is stable.
"This should serve as a reminder that while the news stream out of Europe was generally quiet this week, the potential and risk is for more bad news to emerge from time to time and roil markets," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.
"We are still negative on the euro. We think this is going to be a multiyear bear trend for the euro," he added.
In late New York trading, the euro was at $1.2271, down 0.8 percent, after dipping as low as $1.2265, according to electronic trading platform EBS.
Analysts said a key support level is $1.2135, the 50 percent Fibonacci retracement of the 2000-08 advance, just above the recent four-year low of $1.2143. Charts further show a monthly close below $1.2135 would favor more weakness, with analysts seeing the next downside support at $1.1640, a low hit in November 2005.
Against the yen, the euro was down 0.9 percent at 111.56, after hitting an intraday low of 111.35 on EBS.
The dollar slipped 0.2 percent to 90.89 yen, while the dollar index .DXY, which measures the greenback's performance against a basket of currencies, was up 0.7 percent at 86.751.
The dollar and yen gained as U.S. stocks fell and data showing U.S. consumer spending unexpectedly stalled in April weighed on risk appetite.
"U.S. data today is not really that good for risk trades," said Vassili Serebriakov, senior currency strategist at Wells Fargo in New York. "So we have seen equities lower."
Analysts said the downgrade of Spain was largely expected, though the timing caught the market by surprise.
"We see multiple downgrades ahead for Spain," BBH's Thin said. "Indeed, Spain is the 800-pound gorilla in the room. Greece and Portugal are small countries, but Spain is about five times their size with regards to GDP."
Spain's head of Treasury said the country's sovereign debt rating was still high despite the Fitch downgrade.
A $1 trillion safety net set up by European officials earlier this month to ward off the adverse effects from Greece's debt problems and the announcements of new austerity measures from Spain and Portugal have failed to halt the euro's decline.
Analysts said concerns about the euro zone's debt troubles remain entrenched.
Samarjit Shankar, managing director of global FX strategy at BNY Mellon in Boston, said there has been a lot of short-term borrowing by European governments in the past two years with an average maturity of less than two years.
As a result, refinancing will be a big risk. "That's going to be a constant test as far as market sentiment is concerned," he said.
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