The euro steadied today after rebounding from a one-year low the previous day, but investor mood remained sour.
Activity was subdued in Asia, with Tokyo markets shut for a national holiday and as traders looked to Greek bond moves for euro's near-term direction.
"The mood surrounding the euro remains sour," said Satoshi Okagawa, head of forex and money trading group at Sumitomo Mitsui Bank in Singapore.
"Buying up the euro is certainly not a good idea. But selling it now looks a bit tough too after some short positions were caught."
The euro was littled changed around $1.3210. It hit a one-year low at $1.3114 on electronic trading platform EBS yesterday but bounced back after the Federal Reserve's policy statement boosted appetite for risk.
At the conclusion of its two-day rate setting committee meeting, the Fed maintained the "extended period" language and slightly upgraded some of their economic forecasts.
Still, the market is heavily short on the euro on Greece's budget woes and worries over sovereign risk in Europe.
Those worries intensified after Standard & Poor's downgraded Spain's credit rating by one notch to AA, following downgrades of Greek and Portugal's debt a day before that had sparked sell-off in stocks in worldwide.
Expectations yeesterday that an aid deal for Greece would grow triggered a rally in euro zone peripheral government debt, tempering the effect of heavy selling in thin liquidity that had seen two-year Greek yields soar to 38 per cent.
Aid package for Greece will be worth €100 billion to €120 billion over three years, according to IMF managing director Dominique Strauss-Kahn, said a member of German parliament for the opposition Greens.
Mr Strauss-Khan later said details of the plan would not be available until talks in Athens are concluded.
Traders said the euro would come under pressure if Greek yields push higher again.
For now, support for the euro is seen around $1.31, the 76.4 per cent of its move up from a low of around $1.2440 in March 2009 to a high of $1.5140 in November last year.
The dollar was slightly weaker against the yen at 93.95 yen, dragged down by the euro's fall against the Japanese currency. The euro dipped 0.2 per cent to 124.10 yen.
The dollar gained more than 1 per cent versus the yen yesterday, boosted by a rise in risk appetite and higher US Treasury yields.
Reuters