Euro slips on debt jitters

The euro slipped today as investors continued to dump the single currency on jitters that the euro zone debt crisis may deepen if Greece fails to approve drastic austerity measures needed to secure more funding for its debt.

The single currency extended losses for a fourth session against the dollar and teetered near a record low versus the Swiss franc as Greece's parliament begins debate on harsh fiscal measures today, ahead of a vote expected on Thursday.

Analysts said the euro would be vulnerable to selling on any comments from Greek or other European officials which may cast doubt on the ballot's outcome, as failure to pass the measures would block Athens from more bailout funds, and could raise the threat of bankruptcy.

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.

Despite deep public opposition in Greece to the measures, analysts expect the austerity plan to pass, which could spark a correction in the single currency later in the week.

"What's the alternative? It would be a total disaster. They couldn't let that happen when we are this close to a solution to postpone (a default) for another year or two," said Richard Falkenhall, currency strategist at SEB in Stockholm.

Markets were expecting this much, he added, which would keep the euro above the psychologically key $1.40.

The euro traded 0.2 per cent lower at $1.4165. It has continued its downward move after taking a beating last week on jitters that domestic turmoil in Greece may threaten the country's chances of obtaining more bailout funds.

As a result, investors have amassed short euro positions, or bets to sell the single currency, with the latest IMM data showing a hefty fall in net long positions in the single currency last week.

Traders cited a slight squeeze on those short positions in early European trade as pulling the euro further away from a session low of $1.4102 in earlier trade.

Demand from real money demand to pick up euros around $1.4140 boosted the single currency, while its downside was limited by Asian sovereign-related interest around $1.4080 and below.

But the single currency remained on the back foot overall, as a fall below $1.4073 hit mid-month would take it to its lowest in a month.

The short squeeze in the euro supported the euro versus the Swiss franc around 1.1828 francs, but the single currency hovered near a lifetime low of 1.1808 against the franc, which has rallied dramatically since April due to its safe-haven status.

The dollar has benefited from broad risk aversion stemming from the ongoing euro zone debt crisis, as investors have been cutting back on short positions in the US currency.

Against a currency basket the dollar rose 0.3 per cent to 75.852. A decisive break above 76.00 would take it to its highest in a month. Versus the yen , the dollar rose half a per cent to 80.80 yen.

Analysts say ongoing uncertainty about debt problems in Greece and the rest of the euro zone would support the dollar.

But they warn that the struggling US economy is far from stable, while Washington suffers from its own fiscal problem as it approaches its debt ceiling again, which could haunt the dollar in the longer term.

Reuters