The euro dived under $1.30 today, hitting the lowest point since the start of the year on mounting concern about the euro zone debt crisis in the wake of last week's summit. In mid-morning trade the euro sank to $1.2988, touching its lowest level since January 12. It later stood at $1.2995, down from $1.3033 in New York last night. Investors have grown increasingly nervous about the outcome of last Friday's EU summit which agreed tighter fiscal rules for the euro zone but which many feel did not go far enough.
Twenty-six of the European Union's 27 members backed a new "fiscal compact" but Berlin's hopes for a treaty revision were dashed when Britain opted out, citing a lack of protection for the City of London financial centre. The euro's fall had started to gather pace yesterday after a report said Germany was opposed to raising the €500 billion lending limit for the planned European Stability Mechanism (ESM).
The ESM is to succeed the euro zone's temporary bail-out fund, the European Financial Stability Facility, next year. At a meeting of her party on Tuesday, German Chancellor Angela Merkel signalled to deputies that Germany remained opposed to any increase. Euro selling was also propelled by the decision by the US Federal Reserve last night to leave interest rates near zero as it pointed to moderate improvement in a US economy still fraught with problems.