Filomena Scalise

New York - Moody's three-step downgrade of Spain late on Wednesday pushed the euro lower but it still managed to end the day with a gain on the dollar.

The downgrade, dealt out as Madrid takes on another 100-billion euros in debt from the European Union's emergency fund to rescue its banks, sliced back nearly half of the currency's one-cent gain on the greenback earlier in the day.

At 21h00 GMT, the euro was at $1.2556, compared to $1.2502 late on Tuesday.

The modest fall after Spain's downgrade suggested that few were surprised by it, said Sebastien Galy of Societe Generale in New York.

“It tells you much about how bearish market expectations are when a three-notch downgrade of Spain pushes EUR/USD 15 pips lower,” he said.

“Admittedly they were only catching up to their (European) colleagues. The impact will be potentially on the value and eligibility of Spanish bonds as collateral,” he said.

Michael Boutros of DailyFx said the outlook for the euro is still generally glum over the next week.

“While the outlook for the euro remains heavily weighted to the downside, results of the Greek elections this weekend are likely to fuel exceptional volatility in the pair as investors weigh prospects for a possible exit of the euro,” he said.

“Look for the greenback to remain well supported heading into Asia Pacific trade.”

The yen was mixed, slipping against the euro but gaining on the dollar.

At 21h00 GMT, the euro bought 99.78 yen from 99.44 on Tuesday. The dollar was at 79.46 yen, down from 79.52 yen.

The British pound weakened, heading to $1.5508 from $1.5569.

The dollar bought 0.9564 Swiss francs compared to 0.9606 francs. - Sapa-AFP