LONDON: The euro inched up on Tuesday, but sentiment was fragile as efforts by policymakers to address the debt crisis are falling short of expectations and European Central Bank chief Mario Draghi has been dashing hopes of any aggressive support.
The euro was up 0.3 percent at $1.3033, above an 11-month low of $1.2944 hit last week and a Monday session trough of $1.2983.
Draghi told European Parliament on Monday that the ECB's purchases of peripheral debt were temporary and "not infinite", disappointing investors who were hoping for further bond buying that would keep yields stable. He also said 2012 will be a difficult year for the euro zone's banks, and recovery is likely to be slow.
European policymakers also failed on Monday to boost resources at the International Monetary Fund by an expected 200 billion euros. Instead they agreed to bolster lending by 150 billion euros ($195 billion), casting fresh doubts whether the scheme would work to save larger economies like Italy.
"Sentiment remains fragile towards the euro," said Simon Derrick, head of currency research at Bank of New York Mellon. "They have agreed to boosting resources by 150 billion euros which still raises questions about Italy and the threat of rating agencies looming. You just need another piece of bad news and the euro will nudging closer to its 2011 lows."
The common currency's 2011 lows of around $1.2860 were struck in early January and analysts say the failure to persuade countries to bolster lending to the IMF participate will be negative for the euro.
Resistance lies at $1.3090, which would be a 50 percent retracement of its recent move to $1.2944 from $1.3236.
Still, there is a chance that the euro could receive a brief lift on unwinding of bearish bets in thin conditions ahead of the year-end..
The ECB's first three-year loan tender on Wednesday will also be closely watched and is expected to receive heavy bids. This could ease some fears about a dollar crunch for euro zone banks. Euro zone banks are expected to buy some 250 billion euros, according to a Reuters poll.
But with European leaders still trying to come up with measures to contain the region's debt crisis two weeks after a key EU summit failed to come up with a comprehensive solution, many see any bounce in the euro to be met with fresh selling.
GERMAN IFO, SWEDISH RATE DECISION
The euro is likely to be swayed by the influential German IFO survey for December due to be released at 0900 GMT. The survey could show a slowdown in Europe's largest economy is gathering momentum and is likely to provide little comfort to the euro.
The euro rose briefly to a session high of 9.0150 against the Swedish crown after Sweden's central bank cut the repo rate, before giving up those gains to trade at 8.9695 crowns.
Seven of the 16 analysts polled by Reuters had expected the central bank to cut the repo rate by 25 basis points to 1.75 percent and was a close call after Norway's central bank lowered rates by 50 basis points last week, matching a recent easing by the ECB.
The Australian dollar stood at $0.9952, up 0.6 percent on the day after the Reserve Bank of Australia (RBA) presented a balanced outlook in its policy meeting minutes, countering worries of some traders who were expecting a more dovish view.
The greenback was steady against the yen at around 77.99 yen , but some strategists said thin conditions at the end of the year could nudge the pair out of its recent complacency.
"The dollar/yen tends to trade in a volatile way during the last three business days of the year, based on trading patterns in recent years," said Tohru Sasaki, head of Japan rates and FX research at JPMorgan Chase Bank in Tokyo.
Japan will increase its currency intervention war chest to 195 trillion yen ($2.50 trillion), the government decided on Tuesday. The increase will be made in a fourth extra budget for the fiscal year to next March.
Japan has already spent roughly 128 trillion yen on intervention, so the increase would effectively mean it has some 67 trillion yen to spend, to stifle whatever it deemed to be excessive yen strength.
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