LONDON: The euro fell on Friday as concern about peripheral debt and the low growth outlook outweighed relief at Greece successfully completing a bond swap that should avert a messy default.
Greece won 85.8 percent acceptance from its private creditors for a bond swap deal that will ease its massive public debt and clear the way for a new international bailout.
The euro fell against the dollar after the announcement and extended losses in European trade as low as $1.32122, down around 0.4 percent for the day. Traders reported demand around $1.3200 and $1.3170/80 with offers at $1.3290/1.3300.
"The market was supported by gathering momentum with respect to the Greek debt swap, but it appears to have been a sell on the news event," said Jane Foley, senior fx strategist at Rabobank.
"The outlook for the euro is far from rosy with yields on debt markets showing pressure in Portugal and to a lesser extent Spain, and this shows there is capacity for the debt crisis to throw the euro off course again," she added.
Portuguese government bond yields rose on Friday as the country looked to be the next weakest link in the euro zone's sovereign debt crisis.
Representatives of the European Commission have been in Spain to evaluate its 2011 budget deficit which came in much higher than expected, while the country has defied the EU and softened this year's budget deficit target.
"We think Portugal is largely ring-fenced but Spain could be a bigger problem," said Geoffrey Yu, currency strategist at UBS, who target a move towards $1.25 in the euro, which he said was primarily based on a relative growth view.
GREEK CDS
In a statement following closure of the offer late on Thursday, the Greek finance ministry said 172 billion euros in total had been tendered for the deal, which will force investors to take losses of as much as 74 percent on their holdings.
It said it had told its international partners that it intends to use clauses that will force any holders of the outstanding 177 billion euros of bonds regulated under Greek law to accept the deal.
That step that could lead to the triggering of payouts on credit default swaps on Greece's debt. The International Swaps and Derivatives Association said it will meet on Friday at 1300 GMT to decide whether Greek credit default swaps will pay out.
"The base case assumes that this CDS event is well telegraphed and will not trigger stress in the market, although there may be some doubts as to whether those that wrote the protection can pay. We think uncertainty around the CDS event requires a small risk premium in the euro," said ING in a note.
In a sign of investors' relative ambivalence towards the euro/dollar pair, one-month implied option volatility, a measure of future price swings, traded around 9.50 percent, close to the year's lows.
The euro was down 0.1 percent against the yen compared to late US trade on Thursday at 108.16 yen
The dollar was up around 0.2 percent on the day at 81.74 yen , close to a 9-1/2 month high of 81.899 yen hit earlier on trading platform EBS, as expectations for further monetary stimulus in Japan continued to knock its currency.
US jobs data due at 1330 GMT will be closely watched, especially after the Wall Street Journal reported earlier in the week that Federal Reserve officials were considering sterilised quantitative easing to further help the economic recovery.
An outcome that bolsters such expectations could be the dollar's undoing. However, economists in a Reuters poll expect a robust 210,000 new jobs to have been created in February, following the previous month's above-expected 243,000.
Attention will also be on the unemployment rate which is forecast to remain at an elevated 8.3 percent.
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