Euro slides for 3rd day as Greece woes persist

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 survey of German business sentiment.

"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.

US Commerce Department data that new orders for long-lasting goods rose more than expected in May had minimal impact, even though the data helped ease fears of a slowdown in factory activity.

Greece's parliament is scheduled to vote on the austerity plan on June 29 and 30. 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 would hit them hard.

Adding to worries that the European debt crisis could spread, shares of Italian banks slumped amid speculation that imminent stress tests may highlight capital shortfalls.

In midday New York trading, the euro fell 0.5 percent on the day to $1.41790. For the week, the euro was down 0.7 percent and was down 1.5 percent so far this month.

The euro fell below 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 earlier hit a session high of $1.43067 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 the euphoria quickly dissipated due to uncertainty about what would happen if Athens is unable to pass radical economic reforms, including tax hikes and spending cuts. The Eurogroup -- the finance ministers of the euro zone -- meets on July 3 to decide on a Greek bailout package, which has been made conditional on Athens approving the austerity plan.

It seems "Europe is committed to providing Greece with the resources it needs to survive the current crisis," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

"However, the question is not whether Greece gets enough money to survive the crisis, but whether it gets enough money to keep it from pulling out of the euro zone and going its own way. Either way, a technical default seems unavoidable."

The euro fell near an all-time low versus the Swiss franc and was last down 0.6 percent at 1.18900 francs.

The single euro zone currency was also weaker versus the yen, trading down 0.8 percent at 113.920 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 0.2 percent higher on the day at 75.588.

Copyright Reuters, 2011