The euro fell against the dollar in volatile trade today as conflicting reports emerged of a potential new aid deal for debt-laden Greece to help it meet its funding requirements in the next two years.
The euro touched the day's high after Dow Jones News reported that Greece could receive aid totaling €60 billion as soon as June, but pulled back after Greece denied the report.
It traded well off yesterday's low, the lowest since April 19th, but analysts said it was still vulnerable to escalating concerns about euro zone debt even as investors remain focused on the outlook for higher rates in the euro zone compared with the US.
"The euro continues to struggle amid a backdrop of renewed debt problems in the bloc's periphery," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The euro was last down 0.1 per cent at $1.4346, with the session peak at $1.4395 and the low at $1.4267.
Adding to the uncertainty over the situation in Greece, a German MP questioned whether Greece had met the terms for its next aid tranche, while a source said EU and IMF inspectors have not yet concluded whether Greece is meeting its targets.
"This seems a bit early to come up with something concrete. I think we'll get more posturing before a deal can be agreed on Greece," said Gavin Friend, currency strategist at nabCapital in London.
Yesterday, Standard and Poor's cut Greece's rating to B from BB-, saying its projections suggest that debt reductions, or haircuts, of between 50 per cent and 70 per cent of the bonds' original value could be needed to make Greece's debt burden sustainable.
Coupled with a media report last week - later emphatically denied by European policymakers - that Greece may be considering exiting the euro, it highlighted the dilemma of how best to extricate the country from its debt quagmire.
"Despite receiving a massive bailout last year, the combination of deep recession, strict austerity measures and sky-high borrowing costs have sent Athens into a vicious debt cycle that may only be broken by a restructuring of its existing obligations or by devaluing its currency, an option that is unavailable to it as long as it remains part of the euro zone," said Commonwealth Foreign Exchange's Esiner.
Traders said some macro accounts had started to reduce their euro short positions. Other market players also suggested selling was overdone in the near term after the euro tumbled from a 17-month high last week.
"We need a fresh trigger to go lower in the euro from here. I think we're in a $1.43/1.46 range for now," said Geoffrey Yu, currency strategist at UBS in London.
But Hardman at BTM-UFJ said it was "quite likely" the euro had formed a medium-term top and any move back into the high $1.40s could result in heavy selling by longer-term investors.
A move lower could test support around $1.4150 - near its mid-April low and a 38.2 per cent retracement of the January-May rise at around $1.4145.
Recent euro weakness was triggered by disappointment over a lack of hints on a rate increase next month from the European Central Bank last week. Because rising oil and commodities have been at the root of inflation that has pushed the ECB to tighten policy, declines in oil prices could make investors scale back their expectations of rising rates.
The euro was up around 0.3 per cent against the yen at 115.61 yen after sliding to a six-week low earlier in the global session.
The dollar was up 0.4 per cent at 80.60 yen, well above a seven-week trough touched last week.
The Swiss franc fell to session lows against the dollar and the euro after Swiss CPI inflation rose 0.1 per cent month-on-month in April, well below forecasts and denting the chance of a Swiss rate increase in June.
Reuters
