LONDON: The euro steadied after hitting a two-year low against the dollar early on Monday, looking vulnerable amid concerns euro zone finance ministers meeting later will merely highlight the limitations of anti-crisis measures agreed last month.
Monday's meeting will focus on follow-up steps to the plan drafted in June by European leaders to shore up indebted states and banks. Doubts about the plan's effectiveness surfaced last week.
Further rises in Spanish and Italian bond yields, which have recently hit levels seen as unsustainable, could push the euro down further, potentially bringing the 2010 low of $1.1876 into view.
But having lost more than 3 percent against the dollar last week, the euro may have scope for a temporary rebound as traders take profit on hefty bearish positions.
The euro was up 0.1 percent against the dollar at $1.2276, off a low of $1.2225 hit in thin early trade as traders reported demand to sell the currency above $1.2300.
"The euro has moved a great distance in a short period and there is a risk of a bit of a correction. But unless it rises through $1.2410 it will still be worth fading any rallies," said Jeremy Stretch, head of currency strategy at CIBC.
"There is nothing too positive expected from the Eurogroup (finance ministers) meeting or from a speech by (European Central Bank president Mario) Draghi this afternoon. There is a fairly pessimistic tone towards the euro."
The euro came under pressure last week as doubts quickly surfaced about the effectiveness of the June summit deal. It fell further following a widely expected interest rate cut by the European Central Bank on Thursday.
Pressure for action by European leaders is growing, but there are nagging concerns that decisions on issues such as banking supervision, how to use Europe's rescue money, aid to Spain and Cyprus, and whether to grant concessions to Greece may take months to finalise.
"If leaders couldn't agree on details, there's little chance that the finance ministers will reach any further agreement, so anyone betting on another positive surprise might be disappointed," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.
With the euro languishing, the dollar index was at 83.248, not far off a June 1 peak of 83.542. A break above there would take it back to highs not seen since mid-2010.
WEAK US JOBS
The euro fell further on Friday after US data revealed that the economy created only 80,000 jobs in June, far fewer than needed to bring down the 8.2 percent unemployment rate.
Softer than expected Chinese inflation data on Monday added to concerns Europe's debt crisis was weighing on global growth, which is likely to stoke demand for the safe-haven dollar.
Against the yen, the euro touched a one-month low of 97.48 yen, before rising back to 97.90.
The dollar was at 79.68 yen, moving away from a two-week high of 80.099 hit on Thursday. Chart support was seen at the 200-day moving average at 78.97 yen.
Data released early in the session showed Japan's core machinery orders fell at a record pace in May, but the market reaction was muted because it failed to change expectations the Bank of Japan will stand pat on policy at its meeting this week.
Commodity currencies remained under pressure after the weak US jobs numbers, with the Australian dollar down 0.4 percent at $1.0167, down from a two-month high of $1.0330 hit last week.
But the Aussie held its ground against the beleaguered euro, which bought A$1.2085, having earlier hit a record low of A$1.2002.
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