LONDON: The euro held near a nine-month low against the dollar and a 10-year trough against the yen on Tuesday, as euro zone policymakers failed to quell rising fears of a Greek debt default, hitting riskier currencies and boosting the greenback.
The dollar rose to a nine-month high against a basket of currencies with, the market gripped by worries that Europe's debt crisis could substantially damage its banks and accelerate a global economic downturn.
Euro zone finance ministers are reviewing the size of the private sector's involvement in a second international bailout package for Greece, while an agreement to push back the next aid tranche for Athens until mid-November heightened investor concerns over the threat of default.
Despite ever deeper cost-cutting measures, Greece admitted on Monday that it will miss this year fiscal targets, sparking fresh doubts over further international aid.
"The tone for the euro is sour after the failure of the euro zone finmins to bring anything concrete to the table with respect to Greece," said Jane Foley, senior currency strategist at Rabobank.
"The market is increasingly worried about the ... Greek crisis and the calamity that could be created if there was a messy default."
Shares in Franco-Belgian financial group Dexia plummeted on Tuesday over its exposure to Greece, forcing France and Belgium into guaranteeing the bank's financing in an attempt to prevent wider damage to the banking system.
The euro fell to as low as $1.3145 as option barriers at $1.3150 were eroded. It later recovered to trade with slight gains for the day at $1.3200 as some traders booked profits on some short positions. Stronger demand was located around large $1.3100 barriers.
Technical traders said the outlook for the common currency had turned increasingly negative after a bearish cross on the 50- and 200-day moving averages, while support was seen at $1.3040, a 61.8 percent retracement of the rally from $1.1876 in June 2010 to $1.4940 in May 2011.
"It's clear to the markets that Greece is ultimately insolvent and a larger bailout package or restructuring is necessary," said Raghav Subbarao, currency strategist at Barclays Capital. Barclays forecast the euro will fall to $1.25 in the next three months.
The euro also hit a 10-year low of 100.77 yen before recovering to trade with gains of 0.3 percent at 101.19 Some analysts said extreme short positioning for the euro could limit scope for significant falls in the near term.
AUSSIE HIT
The Australian dollar fell to a one-year low of $0.9414 , down around 15 percent from a 29-year high hit in July, as an increasing number of market players also start to worry about Chinese growth, which many investors have counted on as the main growth driver globally as developed economies flop.
Highlighting such concerns is a sharp fall in the price of copper, of which China is by far the biggest consumer, to a one-year low on Monday .
The commodities-driven Australian currency extended losses after the country's Reserve Bank opened the door to possible monetary easing as early as next month if upcoming inflation data proves to be benign.
"(An) improved inflation outlook would increase the scope for monetary policy to provide some support to demand," the RBA said.
"The dovish statement highlights risks out there that the RBA sees and coming on the back of a risk-off environment the Aussie is going to be hit doubly hard," said Foley.
The Canadian dollar also slipped, to a one-year low of C$1.0577 .
With market players looking to hoard the US dollar, the world's most liquid currency, it rose to a nine-month high of 79.823 against a currency basket before slipping back to 79.565.
The greenback was little changed against the yen at 76.68 yen .
The yen was bought heavily during the 2008-09 crisis as many market players unwound yen-carry trades, but some analysts said such trades have not accumulated so much recently, meaning there are fewer reasons for the yen to gain.
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