By Omer Esiner of Travelex

The dollar soared overnight to a new 10-month peak against a basket of currencies as renewed sovereign credit concerns in the eurozone sent investors back into defensive dollar-denominated assets.

Fitch Ratings cut Portugal's sovereign credit rating to AA- from AA and maintained a negative outlook for the nation, citing deteriorating budget conditions.

The downgrade highlighted that Greece's fiscal issues, which have long been a focus of concern for financial markets, are only a small component of broader sovereign issues facing the eurozone.

The news overshadowed strong euro zone economic data and the first hints from Germany that it may be willing to consider financial assistance for Greece, although it signaled that any help would come with strict conditions. The euro fell to record lows against the Australian dollar and the Swiss franc and to a 30-month low against the Canadian dollar.

The broad pullback in risk appetite across financial markets pushed the safe-haven greenback higher across the board, with its steepest gains coming against higher-yielding and riskier currencies.

Investors remain focused on a summit of EU leaders taking place Thursday and Friday. Lack of any progress toward an internal resolution for Greece's debt issues would add to the single currency's heavier tone and continue to support the dollar.

U.S. durable goods orders rose by 0.5% month over month in February, slightly worse than the 0.7% expected. However, January's figure was revised up from 2.6% to 3.9%. Excluding transports, durable goods rose by 0.9%, which topped expectations for an increase of 0.6%. The data took a back seat to developments regarding sovereign credit issues in the eurozone. The greenback should enjoy continued support from the heightened level of investor nervousness.

EUR: The euro fell to a 10-month low against the U.S. dollar, a 30-month trough against the CAD and record lows against the Swiss franc and Australian dollar.

Fitch Ratings lowered its rating for Portugal's sovereign debt one notch and labeled its outlooks as negative.

Fitch cited the fiscal shock of soaring spending in the wake of the worst recession since World War II amid a backdrop of economic and structural weakness for the deterioration in Portugal's credit standing.

The news highlighted the view that Greece represents only small part of the eurozone's sovereign credit risk. It also overshadowed strong economic data showing the highest reading of Germany's Ifo survey of business morale since 2007 in March.

Separately, wrangling within the EU about aid for Greece continued but seemed to move marginally toward some resolution. Germany's chancellor, Angela Merkel, said that she would consider financial aid for Greece but only with strict conditions. She said assistance would come only if Greece was unable to access credit markets and that any plan would require substantial contribution from the IMF.

She added that this week's summit of EU leaders would not be focused on Greece and that no official plan was likely at this time, but that a meeting of EU leaders would be called if an emergency arose. The comments failed to provide any meaningful clarity to the outlook for Greece and fell short of market hopes for a more solid plan from the EU. The euro is likely to remain heavily biased to the downside as a result.

GBP: The pound fell back toward the lower end of its recent ranges against the greenback and Canadian dollar overnight. Renewed credit concerns in the euro zone weighed on the market's appetite for risk.

Cooler-than-forecast U.K. CPI data on Tuesday added to the pound's generally heavy tone as well. Investors now look to this morning's release of the U.K. government's budget for the 2010-2010 fiscal year. A shortfall in borrowing last month suggested that the forecast deficit may not be as bad as previous years. However, an upcoming election in the U.K. could prompt officials to keep fiscal conditions loose, a development that would likely fan worries about the U.K.'s deteriorating public finances.

CAD: The Canadian dollar slipped against the greenback after renewed credit concerns in the eurozone weighed on risk appetite. The slide in commodities like crude oil undermined some of the Canadian dollar's recent appeal. Still, the loonie should remain underpinned by Canada's improving domestic performance and the risk that the nation's central bank could move sooner than previously expected to raise rates.
Omer Esiner serves as the Senior Currency Market Analyst at Travelex, Inc. a global financial institution specializing in corporate foreign exchange services and international payment solutions. In this capacity, he monitors, analyzes and interprets the economic, financial, political and technical factors that drive the movements of more than 100 currencies for Travelex. Mr. Esiner explains the currency markets' reaction to market events to clients, employees and members of the media.

You can view his daily reports, recording briefings, and quarterly reviews posted here. As an expert in foreign exchange, Mr. Esiner is quoted regularly by the financial media including The Wall Street Journal, CNN, Dow Jones Newswires, Reuters, the Nightly Business Report, National Public Radio, among others. Based in Washington, D.C., Esiner joined Travelex in February 2000. Prior to his current position, Esiner was a currency trader for several years. Mr. Esiner holds a bachelor's degree in economics from the University of Maryland, College Park. He is fluent in Turkish and proficient in Spanish.