Dollar strengthens as investors eye Greece, Spain

AP News
Posted: May 20, 2011 3:29 PM
Dollar strengthens as investors eye Greece, Spain

Investor worries about economic conditions in Europe, particularly Greece and Spain, propelled the dollar higher Friday.

The euro slid to $1.4201 in late trading in New York Friday from $1.4311 Thursday.

Credit ratings agency Fitch cut Greece's long-term credit rating further into junk status, saying the indebted country faces challenges changing its economy and government to reduce debt.

Investors remain concerned that Greece will have to stretch out its debt repayments or pay creditors less than what they're owed. Europe's banks, especially those in Greece, hold lots of Greek bonds, and a restructuring could hurt them.

Meanwhile, Spain is holding regional elections this weekend. Investors are afraid that the new politicians expected to take office will say that the country is even more deeply in debt than the current government had forecast, said Brown Brothers Harriman analyst Marc Chandler. That raises the possibility that Spain would need to seek a bailout, following the path of Greece, Ireland and Portugal.

The euro had risen a steep 10 percent this year, hitting its strongest point since December 2009 near $1.49 in late April because investors had expected the European Central Bank to keep raising interest rates. The Federal Reserve is expected to keep rates near zero for a long time, possibly until the end of next year. Higher rates can generate bigger returns on an investment, so they tend to support currencies.

But a renewed focus on problems in Europe this month has bolstered the dollar, even though economists think economic growth might not be as strong as had been hoped in the U.S. this summer.

In other trading Friday, the British pound edged up to $1.6276 from $1.6214, while the dollar edged lower to 81.57 Japanese yen from 81.63 yen. The U.S. currency rose to 97.23 Canadian cents from 96.93 Canadian cents but fell to 0.8771 Swiss franc from 0.8815 Swiss franc.