DJ WORLD FOREX: Euro Drops To Lowest Level Vs Dollar Since March 2006

By Bradley Davis    Of DOW JONES NEWSWIRES  
 
NEW YORK (Dow Jones)–The euro dropped to its lowest level in more than four years Friday as a disappointing U.S. jobs report, combined with fears the euro-zone sovereign-debt crisis is spreading across the region, led investors to flee risky assets. 

The common currency fell below the key $1.20 level–its 10-year average–and could head toward $1.18, the level it exited its first day of trading when the common currency was introduced in 1999. 

The common currency fell to more than four-year lows on worries Hungary would be the next country to fall victim to a debt crisis, joining fiscally stressed euro-zone countries such as Spain and Portugal. 

Worse-than-expected U.S. jobs data only added fuel to the fire, causing investors to question the pace of the global economic recovery, and leading them to head for the perceived safety of the dollar, yen and Swiss franc. 

\”With the weakness in the U.S. jobs number, all of a sudden the global economic recovery starts to have another big uncertainty over it,\” said David Watt, senior currency strategist at RBC Capital Markets in Toronto.  

Nonfarm payrolls rose 431,000 in May, dashing economists\’ expectations of a rise of 515,000.  Late Friday, the euro was at $1.1962 from $1.2156 late Thursday, according to EBS via CQG. As U.S. stocks piled on losses, the euro dropped to its lowest level since March 2006 at $1.1955.

The dollar was at Y91.60 from Y92.64, while the euro was at Y109.56 from Y112.63. The U.K. pound was at $1.4467 from $1.4615. The dollar was at CHF1.1623 from CHF1.1565.  

The ICE Dollar Index, which tracks the greenback against the trade-weighted basket of currencies, was at 88.271 from 87.240. The index tracked to its highest level since March 2009 as investors turned to the perceived safety of the dollar.  

The common currency has dropped more than 15% against the dollar since the start of 2010 as the sovereign debt crisis has spread to the euro-zone periphery and now has triggered fears it will infect the region\’s financial system, and perhaps even stymie the entire global recovery. 

Before the jobs data, the euro had dropped to its lowest-ever level against the Swiss franc, at CHF1.3865, triggering some investors to keep an eye out for a possible fresh round of Swiss National Bank intervention to temper franc strength. But there was no evidence of Swiss central bank action, one analyst said, even as the euro recouped some of its losses. 

Investors have turned to the safe-haven franc as the sovereign debt crisis has roiled the euro zone, and as Swiss data have steadily marched forward.  

Also putting heavy pressure on the common currency was a warning from an official in Hungary\’s new government that the country faces a Greece-style fiscal meltdown. The warning by the vice president of the election-winning Fidesz party, Lajos Kosa, said Hungary was in a sovereign credit crisis also hit the Hungarian forint in currency markets. The dollar gained more than 4.4% against the Hungarian currency. 

A spokesman for Hungarian Prime Minister Viktor Orban declined to comment on the official\’s remarks. The spokesman said the new government was committed to prevent a Greece-like crisis, but said Hungary was in a severe situation.  

Hungary\’s prospects are also harmed by the ascent of the Swiss franc because many Hungarian mortgages are denominated in Swiss francs, said Marc Chandler, global head of foreign exchange at Brown Brothers Harriman in New York.  

Meanwhile, French Prime Minister Francois Fillon might have given the euro a green light to fall further, said Chandler, after he said the euro\’s weakening was good news, and that he wasn\’t worried about the current exchange rate. 

With the ICE Dollar Index strengthening, Deutsche Bank\’s PowerShares U.S. Dollar Index Bearish exchange-traded fund was down 1.47% from late Thursday, while its PowerShares U.S. Dollar Index Bullish was up 1.18%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of the ICE\’s Dollar Index.