The euro rose against the dollar on a technical rebound after hitting a 2-1/2 month low, but the upside was limited due to ongoing concerns about the banking system and the economy.
Traders were quick to cover their short positions after the euro failed to slide further. But underlying sentiment remained weak as banks continued to be crippled by soured assets and the global economic downturn showed no real sign of recovery. Dealers said in such circumstances the dollar remained the currency of choice.
The euro tumbled after Moody's Investors Service threatened to downgrade eurozone banks with significant exposure to the weakening economies in Eastern and Central Europe, and Standard & Poor's said it may review emerging Europe bank ratings.
The euro was up 0.3 per cent at $1.2626 (Dh4.638) after falling to $1.2558 on trading platform EBS, its lowest since December 4. The euro rose 0.4 per cent to ¥116.75. The euro also rose from a 10-week low against the dollar after European banks reported fourth-quarter results that beat some analysts' forecasts, easing concern the financial crisis will worsen.
The European currency snapped two days of losses versus the greenback and yen after Commerzbank AG, Germany's second-largest bank, posted a net loss of €809 million (Dh3.74 billion), compared to analysts' median estimate for a loss of €851m. ING Groep NV, the biggest Dutch financial company, had a loss of €3.71bn, versus the €3.9bn loss it forecast last month. The euro had earlier fallen to a 10-week low against the dollar on speculation the 16-nation region's banks will disclose increasing losses in central and eastern Europe.
The euro also strengthened on speculation the currency's 1.7 per cent decline against the dollar on Tuesday was excessive, according to Minoru Shioiri, senior manager of currency trading at Mitsubishi UFJ Securities in Tokyo.
The euro's 14-day stochastic oscillator, a technical indicator that measures momentum, was about 10 yesterday.