The euro regained some ground on Wednesday as short-term players covered short positions ahead of a European Central Bank policy meeting, following a steep fall against the Swiss franc and the dollar after Moody's slashed Portugal's credit rating to junk.
The single currency was lifted by stop-loss buying as well as broad weakness in the dollar, which fell prey to profit-taking after Tuesday's short squeeze with Asian central banks selling it while hedge funds liquidated their longs in dollar/yen.
While Portugal's downgrade reignited lingering fears about other highly indebted peripheral euro zone countries, a broad flight from risk was averted with stocks and commodities advancing and supporting the Australian and New Zealand dollars.
'The Portugal news doesn't really change fundamentals. That's why the market's reaction was limited to one day. If we were talking about Spain, now that would be a totally different story,' said Koji Fukaya, director of global foreign exchange research at Credit Suisse Securities in Tokyo.
Some economists think Ireland may also need more support and worry Spain and Italy may be next in line for aid.
'We've had some event-selling in the euro from which the market is now recovering,' said Fukaya.
Source : New Age
