TOKYO: The euro moved away from the previous session's one-month high against the dollar in Asian trading Wednesday as investors' relief about a new debt target for Greece turned to unease over the looming US fiscal crisis.
While international lenders agreed on a plan to cut Greek debt, which will allow Greece to secure more financial aid and avoid a chaotic default, market scepticism grew over a lack of detail on how Greece will implement the reforms needed to meet the new targets.
"The purpose of the meeting was supposed to have been not to just give Greece additional funding, but to consider the evidence that Greece deserved to receive additional funding," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.
"This purpose was not fulfilled, which is why the euro buying has halted," he said.
The European unit was also pressured by concerns about the US "fiscal cliff" of tax increases and spending cuts due to take effect from early next year. The US Congress pushed toward compromise on Tuesday but an agreement still appeared elusive, despite growing pressure from business interests for action.
Comments by US Senate Majority Leader Harry Reid on Tuesday over the lack of progress among Democratic and Republican lawmakers also fanned investors' concerns.
"The muddle-through approach in Europe may amplify the outcome of the US fiscal cliff discussions," strategists at Barclays wrote in a note to clients on Wednesday.
"If they go well, the relief on peripheral assets may have legs, including the euro. If it goes bad, even France may get questioned by an uncertain market, and we would expect the euro to suffer," they said.
The euro had been in a rising trend against the dollar since last week, as investors' hopes rose that a deal on Greece would be reached and that US lawmakers would make progress on addressing the fiscal impasse. The single currency rose as high as $1.3010 on Tuesday on trading platform EBS, its highest level since late October.
The euro was down about 0.1 percent in Asia at $1.2934, with support cited at its 55-day moving average, now at $1.2918, and also at the 38.2 percent Fibonacci retracement of its recent rally at $1.2877.
The European unit also skidded 0.4 percent to 105.92 yen , moving away from a seven-month high of 107.135 yen set on Monday.
The dollar dropped about 0.3 percent to 81.89 yen, moving away from a 7-1/2 month high of 82.84 yen hit last Thursday.
The dollar got no help from starkly diverging messages from US Federal Reserve officials on Tuesday. Charles Evans, president of the Chicago Federal Reserve and one of the Fed's most outspoken doves, said interest rates should stay near zero until the jobless rate falls to at least 6.5 percent.
But Dallas Fed President Richard Fisher said the US central bank needs to not set a limit on the amount of assets it is willing to buy.
The yen lost about 4 percent against the dollar over the past two weeks, and some market participants say it was ripe for a correction.
But some still believe that a longer-term trend of yen weakness has already begun, as investors have started to price in a possible game-changing shift in monetary policy after Japan's Dec. 16 election, as the likely winner favours aggressive easing.
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