The euro rose on Monday as investors bet Greece's parliament will approve a fiscal austerity package needed for the country to get emergency aid and avoid defaulting on its debt. A French plan aimed at sorting out how banks will roll over Greek loans to help the troubled eurozone country stay solvent also boosted the currency, which climbed as high as $1.4293 after hitting an overnight low around $1.41.
"The euro still seems to be topping out around $1.43 and we're still negative on it in the longer run, but market expectations are the austerity plan will be voted in," said Mogens Hauschildt, senior dealer at Western Union Business Solutions in White Rock, British Columbia.
Hauschildt said the euro could spike to $1.45 if the package wins approval but would likely retreat from there, as it remains vulnerable to fiscal woes in Spain and Portugal. Added Paresh Upadhyaya, senior currency strategist at BofA-Merrill Lynch, "It could be a 'buy-the-rumor-sell-the-fact' situation. It looks a safe bet they will pass the measures, but a weaker euro after that would not surprise me."
The euro was last up 0.6 percent at $1.4277. The euro also rose 1.2 percent against Japan's yen to 115.48 yen. The dollar added 0.6 percent to 80.86 yen. It also rose 0.3 percent to 0.8355 Swiss francs. Earlier the euro fell firmly into the red after Moody's said Greek banks have lost about 8 percent of private-sector customer deposits so far this year. The ratings agency warned that they would face severe cash shortages if outflows mount to 35 percent of their deposits.
The three major US stock indexes finished Monday's session up sharply and helped the euro recover, though, as traders said Middle East names bought it on dips. Analysts said the euro remains vulnerable to selling on any comments from European officials that may cast doubt on the Greek ballot's outcome.
"The volatility out there suggests people are very nervous," said Steven Butler, head of trading at Scotia Capital. "I think trade will continue to be very choppy, and if the euro gets into the low $1.43s, that would be an area to sell." The possibility of a Greek default has raised concerns about the health of the European financial system and whether it can withstand such a credit event. Such worries triggered a sell-off in Italian banking shares late last week.
Overall, the dollar has benefited from broad risk aversion stemming from the ongoing eurozone debt crisis, as investors have been cutting back on short positions in the US currency. "The fortunes of the USD will be determined largely by the 'not being the EUR,' capitalising on any bad news and retreating when the market gets more hopeful," Credit Agricole analysts said in a note.