FRANKFURT (MarketWatch) � The euro held its ground against the U.S. dollar on Monday, largely consolidating its position amid heightened fears of a Greek default and the impact of a decision by ratings firm Standard & Poor�s to downgrade nine euro-zone countries.
The euro EURUSD �traded at $1.2673 versus the dollar, compared with $1.2677 in late North American trade on Friday. Trade was light, with U.S. financial markets closed for Martin Luther King, Jr. Day.
The shared currency shifted between small gains and losses even as France saw strong demand for Treasury bills in its first test of debt markets since S&P took action Friday. In a widely anticipated move, the firm stripped France of its coveted triple-A rating, lowering it by a notch to double-A-plus. Read more: S&P downgrades anticipated, but still stir turmoil.
�Based on the price action of the [euro/dollar] this morning, Standard & Poor�s decision to slash the credit ratings of most euro-zone countries did not mean the end of the world for the euro. However, the big question is whether today�s muted reaction is caused by the lack of market participants or a real lack of concern about actions by rating agencies,� said Kathy Lien, director of currency research at GFT.
/quotes/zigman/4867933/sampled EURUSD 1.2303, +0.0030, +0.2458%
The ICE dollar index DXY , which measures the U.S. currency�s performance against a basket of six major global units, traded at 81.436, down slightly from 81.459.
�We think investors should be short the [euro] now and we are concerned that Friday�s mass downgrades of euro-zone countries by S&P is not fully priced yet, despite the euro falling to new 16-month lows around $1.2625,� Mansoor Mohi-uddin, head of foreign exchange strategy at UBS Macro Research, wrote in a report.
The euro dropped more than 1% against the U.S. dollar on Friday after S&P stripped France and Austria of their triple-A sovereign credit ratings, downgrading them by one notch to AA-plus. The ratings agency also cut ratings on Italy, Spain and Portugal by two notches. Read full story on the ratings actions.
Also influencing investor sentiment was news that talks between private creditors and Greece on a voluntary restructuring of government borrowings broke down on Friday. Read full story on the unsuccessful talks.
Click to Play S&P downgrades nine euro-zone nationsCountries react to the "Black Friday" announcement of nine credit rating downgrades in the euro zone by Standard & Poor's agency.
�The combination of Greek talks stalling, S&P�s actions and a U.S. holiday isn�t a recipe for a calm Monday,� said Kit Juckes, chief currency strategist at Societe Generale.
�But while I think a weaker euro is an inevitable consequence of this move � and indeed, I�m not sure [European Central Bank President Mario] Draghi sees that as a bad thing � I don�t think this means the single currency system is in more danger of collapse,� Juckes added.
The Japanese yen continued to strengthen against the euro, with the common currency EURJPY �changing hands at �97.17, compared to around �97.39 late in North America on Friday. The dollar USDJPY traded at �76.75, down from �76.90.
The sharp rally in the yen since Friday�s close in Tokyo prompted worries in Japan, where finance minister Jun Azumi on Monday described the yen�s gains against the euro as �a bit rapid.� Azumi, however, said he wasn�t so concerned about the impact on Japanese companies, since their fundamentals were sound, according to a Dow Jones Newswires report.
Among other major currencies, the British pound GBPUSD �changed hands for $1.5308 versus $1.5316.
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