The euro slumped to a four-year low against the dollar on Tuesday as investors balked at a move by Germany to ban certain kinds of bearish trades against stocks and bonds.
Germany's move harkened back to steps taken by financial regulators in the U.S. and world-wide during the financial crisis to limit short-sales—bets that prices will decline—of financial stocks.
Those efforts had only a fleeting positive impact before stocks resumed their declines.
"The market looks at this as another desperate measure...that does nothing to address the long-term issues" related to huge government debt loads, said Matthew Strauss, senior currency strategist at RBC Dominion Securities. "From a currency perspective, the market gave it a thumbs down."
Negative sentiment about the outlook for Europe has intensified in recent days. While some debt-heavy governments, such as those in Portugal and Spain, are taking steps to rein in budget deficits, those moves are likely to result in slower economic growth. In reaction, investors have been selling shares of European banks and the euro.
The euro fell as low as $1.2165 from $1.2384 Monday. The euro has declined 14.7% from the beginning of the year, when it fetched more than $1.43.
The plunge in the euro rippled over into other markets. The Dow Jones Industrial Average had been modestly lower through mid-afternoon but sank to a nearly 150-point loss following the news. The Dow ended the day down 114.88 points, or more than 1%, at 10510.95.Don't cry, smile
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