TOKYO: The euro inched up on Thursday after plunging to a four-month low the day before, but the move was seen as temporary as some Greek banks faced emergency funding needs, compounding fears that an exit from the euro may put more pressure on other struggling European nations.
The common currency fetched $1.2738, up 0.2 percent on the day, though it was still within shouting distance of the four-month low at 1.2681 plumbed the day before. The euro has already shed 3.7 percent in May, coming close to its 2012 trough in mid-January of 1.2624.
Contagion fears and jitters over political turmoil in Athens, where politicians rejecting harsh austerity measures are likely to win June 17 elections, have sent riskier assets such as the Australian dollar sharply lower over the past three weeks.
Dealing another blow to already fragile risk appetite, the European Central Bank stopped providing liquidity to some Greek banks as they are severely undercapitalised, moving them to an emergency liquidity assistance programme.
"The euro may get a bit of a respite after sustaining severe losses this month, but even if it's bought back a little bit, does this change the big picture? I don't think so," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
"The euro is still a 'sell', although investors may want to wait for the outcome of Greek elections before pressuring it further," he said.
KNOCK-ON EFFECT
A Greek departure from the euro area would have a potentially damaging knock-on effect on other ailing economies such as Italy and Spain, whose bond yields have shot back towards the crucial 6 percent mark this week.
Underscoring these concerns, World Bank President Robert Zoellick said Greece's exit could undermine confidence in the euro area and trigger another liquidity crisis.
Traders' skittishness was visible in the options markets, where one-month euro/dollar implied volatility was last at 10.65 percent, not far from the 2-1/2-month high hit on Wednesday at 11.30 percent.
Also three-month risk reversals are showing a firm bias for puts, suggesting options market players are betting on more euro weakness, standing at -3.2 percent compared with -2.15 percent at the start of the month.
Stop loss offers in the euro were cited around the $1.2760-90 area. Against the yen, the single currency also rose 0.2 percent at 102.24 yen. It is down nearly 7.5 percent since the end of March.
With the euro recouping some of its chunky losses, the dollar index - a gauge of its performance against major currencies - eased from a four-month high of 81.573 to last trade at 81.302.
The dollar was broadly steady against the yen at 80.28, not far from a two-week high of 80.56 hit on Wednesday. Its advance stalled ahead of resistance at the Ichimoku cloud's kijun line, on Thursday at 80.60.
Mildly stronger Asian bourses underpinned a rebound in the Aussie dollar, which clawed back towards parity against its US counterpart. It gained 0.4 percent to $0.9946, pulling away from a five-month low of $0.9870 the day before.
The next support eyed was around its December low of $0.9862, while strong sellers were spotted around parity.
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