Euro struggles to extend gains

The euro struggled to extend gains in Asia today as investors hesitated to buy it further on the Greek parliament's expected acceptance of an austerity package, while the market was wary about the long-term outlook for the euro zone's debt problems.

Sentiment towards the euro was lifted by comments by European Central Bank president Jean-Claude Trichet, which markets interpreted as signalling a July interest rate hike, also helping shore up the common currency.

Still, investors were careful about taking additional buying positions as the euro shied away from $1.4400 hit the previous day, a level near its 55-day moving average of around $1.4401.

"We're trying to figure out what to do next. The themes now are votes in Greece and a rate hike in Europe, but from the way it looks today the market is not too confident about buying the euro too strongly," said Kimihiko Tomita, head of foreign exchange at State Street Bank and Trust in Tokyo.

"The Greek plan is largely expected to be passed by its parliament. But even when this hurdle is cleared the long-term outlook remains unclear. We've seen Greece's debt problem deteriorate about a year ago and the problem is still in place. For now I don't see much room for the euro to rise from here," he said.

The euro inched down 0.1 per cent to $1.4365 after slipping to an intraday low of $1.4338. It had reach an one-week high of $1.4397 the previous day, rebounding from this week's low of around $1.4100.

Still, the euro retained gains against other currencies in Asia from the previous day.

Against the Swiss franc it stood at 1.1932 francs , holding above a record low around 1.1800 hit on Monday.

"Some of the EUR's strength stems from Mr Trichet's comments yesterday that appeared both upbeat and confident on the eve of the Greek votes," Société Générale analysts wrote in a note.

"Importantly for EUR/USD, the ECB president repeated the 'strong vigilance' phrase, stressing that a hike will be coming next month if the Greek government wins this week's votes."

The Greek parliament will debate the austerity package from 0700 GMT and vote on it later in the day. Tomorrow, it will vote on a separate implementation law spelling out the fiscal measures in more detail.

The euro's rebound saw the dollar index , which tracks the greenback's performance against a basket of major currencies, fall back to around 75.002, off this week's peak of 75.987.

Oil prices firmed on optimism about Greece, lifting commodities currencies such as the Australian dollar from its recent lows.

The Aussie dollar was at $1.0561, well off an 11-week trough just below $1.0400 plumbed on Monday.

Against the yen, the dollar rose to an overnight high of 81.26 as a rise in US Treasury yields prompted flows into the US currency.

Still, the dollar edged down in Asia on sales by Japanese exporters and foreign margin traders, Tokyo dealers said.

"We've seen a typical risk-on situation with both the dollar and the yen put under selling pressure. In such a situation dollar/yen benefited from a rise in long-term Treasury yields," said Tohru Sasaki, the head of Japan rates and forex research at JPMorgan Chase Bank in Tokyo.

"It's hard to tell whether the current mood of taking risk will continue. We still have to look at the outcome of Greece's vote today."

The dollar was down 0.1 per cent at 81.06 yen after falling to an Asian session low of 80.93 yen.

Reuters