Euro slumps to lowest level against dollar since May

The euro yesterday slumped against the dollar to strike the lowest point since May, as the shared eurozone currency was plagued by concerns about the Greek debt crisis, traders said.

In morning London deals, the European single currency tumbled to $1.3436, reaching a level last seen on May 18, 2009. It later stood at $1.3497, down from $1.3556 in New York late on Monday.

"The spike lower this morning indicates market nervousness about the prospects of a Greek bailout - the message coming out of Europe is still confused," said CMC Markets analyst Michael Hewson.

"Talk of a bailout does not equate with German Chancellor Angela Merkel's comments at the weekend that Greece has to resolve its own problems.

"Some market commentators have argued that the Greece problem is done and dusted - they are wrong."

A warning by European Economic and Monetary Affairs Commissioner Olli Rehn that Greece must act fast and step up measures to slash its public deficit ahead of a key deadline in two weeks soured investor sentiment towards the euro, dealers said.

Greece's deficit is more than four times the allowed EU limit, at an estimated 12.7 per cent of gross domestic product.

Mr Hewson added: "The Greece problem is symptomatic of a wider Europe wide sovereign debt problem and if by some miracle Greece is able to implement an austerity budget we still have the problems of Portugal, Spain and Italy.

"The key level remains 1.3485, however, the likelihood of a break increases with every day as euro rallies become ever more fragile and 1.3200 is only a matter of when and not if."

Athens has pledged to cut the deficit by four percentage points this year but there are widespread concerns that it will fail to meet that target.

Sterling's weakness also contributed to the euro's fall, as the British pound dropped to a 10-month low on fears that an upcoming general election could lead to a hung Parliament with no single party commanding a majority.

Eurozone nations must coordinate economic policies more closely, German Chancellor Angela Merkel said on Monday, acknowledging that the euro was in a challenging phase.

"We agreed that we must have stronger coordination of our economic policies," Mrs Merkel said after talks with Spanish Prime Minister José Luis Rodriguez Zapatero, whose country currently heads the European Union.

She added that sticking to the EU's fiscal rules was "of great importance at the moment".

Under the EU's Stability and Growth Pact, countries are supposed to keep their budget deficits under three per cent of Gross Domestic Product (GDP) and total, accumulated debt under 60 per cent.