Euro slips as Greece uncertainty persists

NEW YORK: The euro edged down against most currencies on Monday in choppy trading, with further losses likely and any rally seen as an opportunity to sell after European finance ministers delayed a decision on the next tranche of Greece's financial aid.

Euro zone finance ministers said the disbursement of Greece's next installment in emergency loans, totaling 12 billion euros, would depend on the approval by the Greek parliament of new austerity measures.

A comment by Klaus Regling, chief of the European Financial Stability Facility, that the fund's guarantees will be raised to 780 billion euros from 440 billion, lifted the euro, but was not enough to overcome the tide of negative sentiment on the currency.

"The euro gave back Friday's gains after the failure of the European finance ministers to reach an agreement on Greece's aid, pushing back the decision until July," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto.

"It's all very fragile at the moment," she added, noting that until investors get some clarity on whether Greece will receive its aid, they will be inclined to sell euros on any rally.

The euro's early losses picked up steam after stop-loss offers were triggered near $1.4250. However, it came off a session low of $1.4191 on a bout of short-covering.

"(The euro's) failure to hold above $1.43 last week threatens a fresh downside test," said Kit Juckes, currency strategist at Societe Generale in London.

The euro fell 0.6 percent against the Swiss franc to 1.2063 francs and was down 0.1 percent versus sterling at 0.8828.

Early in the US session, the euro was little changed against the dollar at $1.43174, well above a three-week low of $1.40730 hit on Thursday on trading platform EBS. However, a move below there would target the 200-week moving average around $1.40150. It earlier hit session highs at $1.43160 in the wake of Regling's comments.

Market players said they expect European authorities ultimately to extend the emergency loans Greece needs by mid-July to avoid defaulting on its debt.

Still, the current impasse and bickering between policymakers has driven up the cost of insuring Greek debt against default and increased the risk of investors losing confidence in other vulnerable euro zone debtors.

Markets will now watch the result of a vote of confidence the newly reshuffled Greek cabinet faces on Tuesday.

Risk reversals on euro/dollar options, which show strong demand for bets on the euro falling compared with bets on it rising, demonstrated the negative view investors have on the shared currency.

One-month risk reversals were trading around 2.7 percent in favor of euro puts, hovering near their highest level since the euro zone's debt problems reached crisis point in May-June 2010, according to data from interdealer broker ICAP.

One factor that may lend support to the euro in the near term, however, is a US Federal Reserve policy meeting later this week, traders said.

The Fed is expected to restate its commitment to hold interest rates near zero for an extended period amid fresh signs the US recovery has lost momentum. It is likely to continue to reinvest proceeds from maturing bonds it holds to make sure its balance sheet does not shrink.

The dollar index, which tracks the greenback's performance against a basket of major currencies, was little changed at 74.963.

The dollar was up 0.1 percent against the yen at 80.100 yen, with traders citing talk of exporter selling interest above 80.50 yen.

Copyright Reuters, 2011