The euro hit two-week lows and growth-linked currencies fell on Monday, undermined by concerns over Greece's progress on completing a debt restructuring deal and poor eurozone data, although losses were checked by profit-taking in the dollar. The dollar slipped away from a nine-month high against the yen having risen more than 7 percent in about a month. The euro was also lower against the safe-haven Japanese currency.
Riskier assets like stocks were hit after Asian powerhouse China lowered its growth target, while eurozone surveys of purchasing managers fell from initial estimates, driving the euro to a two-week low against the dollar. The euro fell to $1.3160, its lowest since February 17, before recovering to trade at $1.3188, still down 0.1 percent for the day, with large investors looking to sell it into a bounce above $1.3200.
Bids for the euro were cited at $1.3150/55 and stops below $1.3130 with many nervous about Greece's bond swap and uncertainty about the level of private participation. All of which was likely to keep it well below recent peaks of $1.3486. Bondholders have until March 8 to join an agreement under which they will exchange their existing Greek government bonds for new paper in a swap deal that will see the nominal value of their holdings cut by 53.5 percent.
Failure to secure a deal could threaten the 130 billion euro deal that has been painfully stitched after months of negotiations. The positive impact of the European Central Bank's huge injection of three-year money last week (LTRO) has also waned, giving investors more reasons to go short on the euro.
"The sugar rush from the ECB's LTRO has faded and the PMI surveys underline the structural problems the euro zone faces," said Jeremy Stretch, head of currency strategy at CIBC World Markets, who added he would look to short the euro against the dollar and the yen.
Not helping the single currency, Spain on Friday set itself a softer budget target for 2012 than originally agreed under the eurozone's austerity drive, putting a question mark over the credibility of the European Union's new fiscal pact. General elections in Greece and France in the next few months as well as the risk of a recession and prospects of further rate cuts by the European Central Bank are also combining to keep investors wary of the euro.
"Having topped up at around $1.35, the euro is likely to drift lower with the new range likely to be at $1.25-1.30," said Steve Barrow, head of G10 currency research at Standard Bank. BNP Paribas analysts said hedge funds and real money accounts were switching their allegiances with regards to favoured funding currencies for interest rate carry trades from the US dollar to the euro and to a lesser extent the yen.
The dollar fell 0.7 percent versus the yen to 81.26 yen, retreating from a high of 81.873 yen on Friday on trading platform EBS. The next major hurdle for the dollar is seen at the 100-week moving average around 82.10 yen. The euro was down 0.7 percent at 107.17 yen. Meanwhile, the growth currencies like the Australian and New Zealand dollars fell. The Aussie was down 0.5 percent at $1.0674 while the kiwi shed 0.9 percent to trade at $0.8216 as global stock markets came under pressure.