The euro weakened across the board after Standard & Poor’s downgraded Greece’s debt to junk grade and cut the rating of Portugal, prompting investors to dump the single currency and euro plunged to a fresh one-year low against the dollar.

Although the single currency rose to 1.3417 initially, the pair then retreated from there and nose-dived to 1.3210 in NY afternoon after Standard & Poor’s lowered Greece’s debt to junk and cut the rating of Portugal. The rating agency cut the Greece's sovereign credit ratings a full three notches to BB plus on worries about its ability to implement the reforms needed to address its high debt burden. S&P also expected Greece's debt to reach 124% of GDP in 2010, 131% of GDP in 2011 and the nation's fiscal challenges would increase pressure on banking and corporate sectors.

In addition, Standard & Poor's also cut Portugal long-term rating to 'A-' from 'A+' and short-term rating to 'A-2' from 'A-1' while outlook was negative. S&P warned the sovereign credit ratings could be cut further if deficits and debt exceed expectations, adding that Portugal's economy would stagnate in 2010.

Dollar together with the Japanese yen rallied across the board as Greece and Portugal's downgrades led to selloff in global stocks markets, spooking investors to unwind risky assets and flock to U.S. dollar and the yen as safe haven on renewed risk aversion. Usd/jpy tumbled from 94.04 to 92.81 while eur/jpy plunged from 125.97 to 122.57 and aud/jpy declined sharply from 87.20 to 85.02.

Economic data to be released on Wednesday include: Japan retail sales, Australia CPI, Germany CPI, HICP and U.S. Fed rate decision.