The credit rating agency Fitch has downgraded Portugal's credit rating from double AA to AA- because of concerns about its high levels of debt.
Earlier this month, Portugal passed an austerity budget aimed at cutting its budget deficit, the BBC reports.
The euro slid against the dollar to its lowest point since May 2009 on the news, dropping 1.5 cents to $US1.3346 on Wednesday.
The downgrade also sent major European stock markets into negative territory.
The credit agency's move heightened concerns about the health of some of Europe's heavily indebted economies, most notably Greece, the BBC reports.
European leaders are currently discussing how best to deal with Greece's debt crisis.