Greece worries put euro on the ropes for 3rd day

NEW YORK: The euro declined against the dollar for a third straight session on Friday, weighed down by concerns Greece's parliament may not pass austerity measures needed for the country to secure more bailout funds from euro zone governments.

Comments from Thomas Robopoulos, a deputy of Greece's ruling PASOK party, saying he will vote against the mix of higher taxes, spending cuts, and state sell-offs roiled the market. His remarks helped send the euro down half a US cent, wiping out initial gains made on the back of a stronger-than-expected German business sentiment survey.

In the United States, stronger-than-expected orders in May for long-lasting goods had minimal impact on trading.

"The market is very jittery today. The economic data is being pushed to the back burner mainly because there is so much uncertainty as to whether the Greek government is going to pass the austerity measures," said Boris Schlossberg, director of FX research at GFT in New York.

Greece's parliament is scheduled to vote on the austerity plan on June 28. An opinion poll on Friday put Greece's conservative opposition -- which has refused to support the plan -- 2.1 points ahead of Prime Minister George Papandreou's PASOK party. It also showed three quarters of Greeks were opposed to the raft of tax hikes and spending cuts that will hit them hard.

A suspension in trade of Italian banking stocks after a 3 percent slump added to worries about the impact of euro zone debt problems on the region's banks.

In early New York trading, the euro fell 0.2 percent on the day to $1.42358. For the week, the euro was down 0.3 percent and about 1.1 percent so far this month.

The euro fell to technical support around $1.41904, its 100-day moving average. Bids were seen around this level, but a close below that was seen as paving the way to more losses.

The euro retreated from a session high of $1.43067 hit after Germany's Ifo think-tank said its business climate index rose to 114.5 in June, beating expectations for a drop to 113.5..

Investors cheered the surprisingly strong Ifo reading, which painted a rosier picture of the German economy compared with a recent run of weak data.

But that euphoria quickly dissipated because of uncertainty about what will happen if Athens is unable to pass radical economic reforms, including tax hikes and spending cuts.

The Eurogroup meets on July 3 to decide on a Greek bailout package, which has been made conditional on Athens approving more aid.

"Our strategists continue to expect the program to pass due largely to the fact the Greek government survived the confidence vote ... and voting for the new austerity program is expected to fall largely along similar lines," said Bob Lynch, head of HSBC's G10 FX strategy in New York.

"Nonetheless, the risk for a different outcome is not negligible, and markets will remain sensitive to developments which suggest the program's passage could be in jeopardy."

The euro fell near an all-time low versus the Swiss franc and was last at 1.19110 francs .

The single euro zone currency was also weaker versus the yen, trading down 0.6 percent at 114.20 yen.

Recent signs of dollar funding strains may cap any euro rally against the dollar, with investors watching to see whether European banks' dollar funding demand will increase in currency forwards and cross-currency basis swaps.

Dollar funding costs implied by euro/dollar one-year cross currency basis swaps as well as three-month euro/dollar forwards both rose on Friday, pointing to an increase in dollar funding demand through such instruments.

The dollar index , which measures its value against a basket of currencies, recovered early losses to trade about flat on the day at 75.475.

Copyright Reuters, 2011