The euro pared its gains today after ratings agency Moody's slashed Ireland's sovereign ratings by five notches, in a timely reminder to investors that the single currency's debt-related woes are far from over.
Moody's cut Ireland's credit rating to BAA1 from AA2, which followed Fitch's move last week and many were not too surprised by the downgrade.
"Of course this downgrade will affect Ireland's ability to borrow but it's unlikely to lead to a squeeze in investors' euro positions," said Paul Robson, currency strategist at RBS.
"Also, it's that time when year-end considerations are at play. The real impact on the euro of all these ratings chatter will gradually be felt in January."
The euro eased to $1.3300 from the day's high of $1.3326, though it was still up 0.45 per cent on the day. Sell-stops are said to be building at $1.3160 and chartists say a break through support around that level would put the euro on a path to test its 200-day moving average at $1.3104.
A bearish euro view was already being expressed through the euro-crosses with the single currency hitting a record low against the safe-haven Swiss franc. The euro fell to a low of 1.2720 francs, before recovering to 1.2785 francs.
The Swedish crown also rose to its highest level against the euro since 2006. The euro traded at 8.9805 to the crown before rising to 9.0039.
That drop came as EU leaders agreed at a summit yesterday to make minor changes to the group's governing treaty to establish a permanent mechanism from mid-2013 to resolve sovereign debt problems.
A draft statement, to be issued at the end of the two-day summit, showed euro zone leaders will declare their readiness to ensure adequate funds are available for the euro zone rescue fund, the European Financial Stability Facility (EFSF).
But analysts say the euro is not out of the woods as European policymakers still appear divided over more concrete measures, such as making more money available to the European Financial Stability Facility.
