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Euro falls to new 4-year low

By Chavon Sutton and Julianne Pepitone, staff reporters

NEW YORK (CNNMoney.com) -- The euro pared fragile gains Tuesday, touching a new 4-year low, amid new concerns about Europe's debt crisis.

What prices are doing: The euro plummeted 1.5% on the dollar at $1.220 on Tuesday, hitting a fresh 4-year low. The European currency had fallen to a four-year low Monday morning versus the dollar, crashing through the key technical level of $1.23 to $1.2234.


The dollar rose 1.0% versus the British pound to $1.4330. It was down 0.4% against the Japanese yen at ¥92.243.

What's moving the market: Earlier Tuesday the European Union's statistics bureau said consumer prices in the zone jumped 0.5% in April over the previous month, a 1.5% increase over April 2009. The results were in line with market expectations. Also, Greece received its first infusion of cash from the joint EU and International Monetary Fund rescue package.

Although the news helped push the euro to fragile gains earlier in the day, it did little to assuage investors and analysts.

"The acceleration of the price index is trivial," wrote Ian Shepherdson, an economist at High Frequency Economics, in a research note.

The euro plummeted in afternoon trading after Germany announced plans to ban short selling on some European banks and government bonds of debt-ladened euro zone countries. Traders saw this as an indication that the troubled nations are not yet out of the woods.

What experts are saying: Germany's announcement "powered the euro lower," said Tom Benfer, director of foreign exchange at Bank of Montreal in New York.

Germany's decision highlights the fact that fundamentals in some of the euro zone countries are really weak, said Benfer. "The authorities are trying to prevent speculators from putting more pressure on them (government debts)," he said. Shorting the bonds of troubled governments could push out borrowing prices further, exacerbating the debt crisis.

Still, some analysts have said that the market has been overly bearish, especially in the wake of Europe's efforts to stabilize the debt-laden countries and the shared currency.

"It doesn't take too much these days to push the euro lower," said Benfer.

But the bearish sentiment in the market is likely to persist as traders seek clearer signs that Europe's woes will not spread and choke off the global economic recover. This will likely push the euro lower.

"It's a moving locomotive right now," said Benfer. "It's very hard to stop because the market psychology is just so negative."  To top of page

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