The euro continued its downward slide in European trading on Thursday, battered by fears that the financial crisis that has enveloped Greece may infect Portugal and Spain.
The euro has dropped to lows last seen in early 2009 as markets debate whether a planned 110 billion euro ($142 billion) European Union and International Monetary Fund bailout will stem Greece's woes and whether other countries in the euro zone could be at risk.
The 16-nation currency went as low as $1.2738 in trading Thursday before recovering slightly to $1.2751. That's still below the $1.2827 it bought the day before in New York trading. The euro sank as low as $1.2805 in New York trading Wednesday, its weakest point since March 2009.
Moody's Investor Services said it may cut Portugal's debt in the next three months. The credit ratings agency said Portugal's rating could fall by one or two notches. Standard & Poor's lowered Portugal's credit rating last week.
That, in turn has pushed borrowing costs in Portugal and Spain higher and left markets more concerned that, like Greece, the two countries may not have the money to repay debts as their economies remain weak.
"Moody's decision to place Portugal on review for a possible downgrade has added to the sense of investor unease over possible debt default in peripheral European countries in the wake of the social unrest in Greece at the moment," said Michael Hewson, a currency analyst with CMC Markets. "Fractures have already started to appear in the political will inside Greece to deal with the problem after the tragic events yesterday."
Because of that concern, markets will be eyeing the European Central Bank meeting in Lisbon later Thursday to see if its president, Jean-Claude Trichet, can tamp down fears of a contagion.
"The European Central Bank could well decide at today's meeting to opt to throw the rule book out of the window and indulge in some bond purchasing, a form of quantitative easing in order to try and defend euro project," Hewson said.
In other trading, the British pound dropped to $1.5033 from $1.5101 as polls in Britain's razor-edge election opened for a race that is likely to reshape the country's politics.
The dollar was down to 93.44 Japanese yen from 93.65 Japanese yen Thursday.
© Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.