The euro edged up from a 10-month low after euro zone leaders agreed on a safety net for Greece which included the IMF, and the dollar backed off a two-month peak on the yen as Japanese exporters sold into its gains.
Euro zone leaders agreed on a joint European-IMF financial safety net for debt-stricken Greece after weeks of wrangling. Under the agreement, Greece would receive coordinated bilateral loans from its euro zone partners and IMF assistance if it faced severe difficulties.
Dealers said the market was still digesting the significance of the package, although the drawn-out debate and inclusion of the International Monetary Fund in the solution dented the image of the euro zone as able to handle its own problems.
The euro could have rebounded more given the accumulation of short-positions, but its gains were limited as the agreement between EU leaders was not strong enough to eradicate market worries, and concerns also persisted on other euro zone nations which are burdened with heavy debts, they said.
"The market has known that there would be some kind of a rescue for Greece eventually. But the euro zone leaders' agreement still lacks details and the market is unconvinced whether Greece can manage its fiscal reconstruction," said Daisuke Karakama, market economist at Mizuho Corporate Bank.
Others said the IMF's involvement with Greece could speed up the country's fiscal reconstruction, although some said there was a risk that extremely strict conditions would harm the Greek economy.
Athens is saddled with borrowing costs more than double those of Germany and must borrow some €16 billion between April 20th and May 23rd alone to refinance maturing debt.
After the euro broke down through the psychological key level of $1.35, the currency's fall began to accelerate and it could still drop as far as $1.30 against the dollar, traders said.
"The rescue news for Greece is positive but as the euro didn't really rise even after news of the IMF's involvement, that seems to show what's happening now is broad dollar buying more than anything else," said a trader at a Japanese bank.
The euro rose 0.4 per cent from late US levels to $1.3325 after hitting its weakest level since early May at $1.3267 on trading platform EBS.
A trader at a European bank said the single currency had scope to recover to a maximum of about Thursday's high around $1.3380-1.3400 after the euro zone agreement on Greece, largely because it has fallen so sharply in the past week.
The dollar index, a measure of its performance against six other major currencies, hovered just below a 10-month high at 82.917 after gaining sharply in the past few days as US yields have risen.
It struck its highest level since early January against the yen yesterday at 92.96 yen, but trickled back to 92.50 in early trade.
"Exporters are ready to sell anywhere around these levels on dollar/yen, though selling shouldn't be as big as yesterday," the trader said.
He said the next target for the dollar was up at about January's high of 93.78 yen, although with exporters ready to sell, getting there could take some time.
Market players also started looking to the US jobs report for March due next week, which would indicate whether the dollar will continue to rise or if its recent gains are only temporary, traders said.
Meanwhile, higher-yielding currencies were holding steady with the Australian dollar at $0.9091 and the New Zealand dollar at $0.7055.
Reuters