(Reuters) The euro slid to an 11-month low against the dollar on Wednesday, as investors speculated that more euro zone countries may be downgraded in the near term given that a quick solution to the region's debt crisis remains elusive.
Market participants shunned the single currency even as Germany and Italy managed to find adequate buyers for new bonds at separate auctions, as investors focused on the fact that Rome's cost to borrow over five years was its highest since the euro was launched.
The euro fell to $1.29945, its weakest since early January, as investors pushed the single currency through options-related barriers at $1.3005 and $1.3000. It later pushed back up to $1.3010.
It retreated from the day's high of $1.3064 hit after solid demand at the Berlin auction.
Selling in the euro pushed the safe-haven dollar to an 11-month high versus a currency basket as investors picked up the world's most liquid currency.
The euro is facing more selling pressure as market participants continue to lose hope for a quick solution to the euro zone debt crisis.
The auctions went OK so the euro traded a bit better after that, but the fact that it's come back down tells you that people are taking the opportunity to sell into any bounce, said Geoff Kendrick, currency strategist at Nomura.
More options barriers around $1.2990 were expected to act as a support for the euro in the near term, but analysts argued the single currency may take a further pummeling if investors become more pessimistic about the euro zone's health.
There's definitely strong support around $1.30, and also in the $1.30-1.29 region, said Arne Lohmann Rasmussen, chief analyst at Danske in Copenhagen.
But if we get a further deterioration of the euro zone debt crisis, if we see a lot of countries being downgraded, or more problems in the banking sector, this $1.30 is not going to hold.
Markets were braced for a possible mass downgrade of euro zone countries, which would deepen the region's debt crisis, after last week's key summit offered no hopes for an immediate resolution.
Speculation is rife that a downgrade for France could come any day.
The single currency fell to 101.41 yen, its weakest since early October, while hitting a nine-month low of 83.89 pence.
Kendrick at Nomura said he expected the euro to stay under selling pressure, but acknowledged that a significant fall below $1.30 before year-end was unlikely.
Investors have already piled up bets to sell the currency, and may be wary of taking on more as trading winds down at the end of the year, given that the overextended positioning could be at risk of a sharp reversal, he said.
The market is already short in spot and massively short in options, so mid-December we start to flat line around $1.29-1.32 into year end, Kendrick said, while adding he anticipated renewed euro selling pressure in the new year.
The dollar index .DXY, which tracks the dollar's value against a currency basket, rose as high as 80.458, while scaling a 9 1/2-month high versus the Swiss franc of 0.9480 franc.
It traded at 78.02 yen against the yen, little changed on the day.
Investors picked up the U.S. currency, considered a safe haven given its vast liquidity, after the Federal Reserve on Tuesday warned that turmoil in Europe posed a big risk to the U.S. economy.
The U.S. central bank refrained from boosting its easing measures this month, as expected.