LONDON: The euro fell back on Tuesday, hurt by a rise in US bond yields and as traders fretted over whether Greece and its creditors could overcome still-formidable political barriers in the way of sealing a debt deal.
The euro's move above $1.14 late in European time on Monday followed a series of headlines indicating an agreement may be reached later this week that would prop Greece up for another period and keep the euro zone's weakest member in the club.
Against that, however, was a powerful surge in the dollar, encouraged by a 5-percent rise in US housing sales that returned markets' focus to a more fundamental driver: the prospect of higher US interest rates.
US 10-year government bond yields rose by around 10 basis points on Monday and the dollar gained across the board in response, prompting a scramble by some of those who had bought the euro in expectations of gains as the Greek deal firms up.
The euro sank by 1.2 percent to $1.1203 by 1146 GMT. "The FX market appears to be focused on the dollar and the next steps for the Federal Reserve, and not the eurozone," said Kathleen Brooks, head of research at online currencies trader.
Euro zone leaders agreed late last night that the institutions representing Greece's creditors should try to wrap up a detailed agreement by Wednesday evening for their finance ministers to approve and present to them on Thursday.
That leaves barely 48 hours to scrutinise the complex plan, make sure the numbers add up, agree on a list of "prior actions" to turn the promises into laws quickly, find a legal way of extending the Greek bailout and get Athens the money it needs to pay the IMF 1.6 billion euros ($1.8 billion) next week.
Analysts pointed to previous evidence of Greek Prime Minister Alexis Tsipras' weakness in the face of resistance from political allies at home.
"If you bought the euro on those (Greek) headlines last night, you come in this morning and realise it has fallen and there are still a lot of problems in the details," said Adam Myers, senior FX strategist with Credit Agricole in London.
EURO UNCERTAINTY
"Basically we think the euro will fall today. People are worried this will not get through the Greek parliament. A lot will also depend on the scale of outflows from the banks."
With the euro up 7 percent against the dollar in the past two months, SG strategist Kit Juckes has been among a number arguing strongly that the whole Greek affair has had little real effect on currency markets.
"I'm not sure how much the Greek talks have to do with the way the market trades unless they fail, in which case the underlying belief that there will be a last-minute deal will be shattered and risk aversion will be the order of the day," he said.
"But assuming we do indeed get the last-minute deal everyone expects, then we will simply move on to wondering whether it can be ratified by individual parliaments and then, how long it will last before we need another one."
The dollar was up 0.9 percent against a basket of currencies and 0.2 percent at 123.82 yen. It surged 1.3 percent against the Swiss franc.
There was no support for commodity-driven currencies like the Australian and New Zealand dollar from still lukewarm Chinese manufacturing numbers.
The kiwi slid to a five-year low of $0.6845 before steadying.
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