The euro slipped on Wednesday, with risks to the downside on mounting uncertainty over whether euro zone officials would provide timely financial aid to debt-laden Greece and Portugal. Sterling hit a 6-week high against the euro after the Bank of England raised its medium-term inflation forecasts in its Quarterly Inflation Report, with markets now expecting a UK rate hike by year-end..
The euro traded down 0.3 percent on the day against the dollar at $1.4358, in sight of a three-week low of $1.4254 hit on Monday. Asian sovereigns were keen to buy the euro on dips. "Euro/dollar is being dominated by concerns about Greece and Portugal and the contagion concerns that triggered a sell-off last week could see the common currency fall further," said Adam Myers, senior forex strategist at Credit Agricole.
Comments from a German deputy finance minister that eurozone officials will debate Greece's debt crisis next week but that no decision will be taken, added to uncertainty as markets fret over potential for a Greek debt restructure. The euro had got a brief boost on Tuesday after a Dow Jones news agency report, citing a senior Greek government official as saying Athens expects to receive a new aid package totalling nearly 60 billion euros ($87 billion) in June.
Greece is not the only source of worry for investors, with Finland delaying a parliamentary vote on the EU's Portugal bailout plan to Friday from Wednesday because the country's second-largest party remained undecided. The Finnish parliament's approval is important because it, unlike others in the eurozone, has the right to vote on EU requests for bailout funds. The leader of Finland's third-biggest party reiterated his opposition to Portugal aid.
The dollar index was flat at 74.614, above a three-year low hit earlier this month of 72.696. "It looks too early to call this a major reversal in the dollar," said Chris Turner head of fx strategy at ING. "Our view has been that with little to emerge in fresh policy from the Fed ahead of its June 22 meeting, the dollar-funded carry trade would be a dominant theme for the second quarter."
Stabilising commodity prices provided support to growth-linked currencies like the Australian dollar, which rose 0.1 percent against the greenback to $1.0835. Traders said some investors were increasingly expressing a bearish view on the euro by adding to bullish bets on the Australian dollar against the common currency.