Reuters: Euro Rebounds from Two-Year Low as Risk Rally Gains Ground

From Reuters

The euro zone's single currency survived a surprise cut in Italy's credit ratings by Moody's, which highlighted the risk that the debt crisis could potentially engulf the bloc's third-largest economy.

But sentiment was buoyed by data showing China's economy grew 7.6 percent in the second quarter, the weakest pace in more than three years, but still better than some outlooks.

"The euro finally caught up with the risk rally that prompted short-covering given that it had been sold off sharply in recent sessions," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

"But going forward, investors still have a fairly skeptical outlook for the euro and its overall bearish tone leaves it vulnerable to a sell on rallies," he said.

The euro last traded at $1.2238 per U.S. dollar, up 0.3 percent, the currency's best one-day rise so far in two weeks.

It earlier fell as low as $1.2160, its weakest level since mid-2010. The slide in the euro came in the wake of the Moody's Investors Service downgrade of Italy's sovereign debt rating to Baa2, citing doubts over the country's long-term resolve to push through much-needed reforms.

On the week, the euro was down 0.2 percent and off more than 5 percent so far this year - far exceeding 2011's annual loss of 3.2 percent. Declines accelerated after last week's deposit and refinancing rate cuts by the European Central Bank.

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