The euro slipped today on continued worries about Greece financing its debt obligations and concerns about other euro zone economies, while the yen benefited as caution drove investors to close trades in higher-yielders.
The pound, helped by upbeat data the previous day, hit a two-month peak against the euro, which at $1.3380 was also slipping towards March's 10-month low on the dollar at $1.3267.
Traders say initial euro support is at $1.3340, the April 9th low, with loss-cutting sell orders lined up at $1.3350.
"There's a bit of caution and profit-taking going around following the fairly sharp rally in risk that we've seen in the early part of the week," said Sue Trinh, senior currency strategist at Royal Bank of Canada in Hong Kong.
The spread of Greek government bonds over benchmark German Bunds widened beyond 500 basis points on Wednesday, the highest in 12 years, while the cost of insuring against a Greek default climbed to a record high.
Spreads of Portuguese government bonds over Bunds widened, spurring fears that the problems facing Greece could be spreading to other southern European countries.
"Peripheral European spreads have blown out with Greek spreads going through 500. That's weighed on most of the risk proxies generally," Trinh said.
Greece is racing to raise €10 billion next month and investors are increasingly convinced it will have to tap a euro zone and IMF package. It started talks with European and IMF officials on Wednesday on a potential aid deal but it could take several weeks before a plan can be finalised.
"The situation regarding the Greek bailout continues to be the main short term factor buffeting the currency," Citi said in a report. "Such uncertainty should weigh on the euro over the medium term and keep peripheral euro zone sovereign spreads abnormally high."
The euro fell to 86.78 pence, its lowest in two months. It also shed 0.4 per cent to 124.25 yen.
As well as unwinding of some positions in higher yielding currencies such as the Australian dollar which are funded by yen, dealers said the Japanese currency was also being bought by foreign players on newspaper reports the Bank of Japan may upgrade its inflation and growth forecasts.
It was also likely to revise up its GDP forecast for the fiscal year ending next March 31 to around 2 per cent from 1.3 per cent projected three months ago.
The dollar fell 0.4 per cent to 92.82 yen, while the Australian dollar also shed 0.4 per cent to 85.93 yen.
The dollar index, which tracks the value of the greenback against a basket of six currencies, rose 0.06 per cent to at 81.214, extending a recovery from this week's trough of 80.76.
The Group of 20 and International Monetary Fund meetings start in Washington on April 22, and the focus is on two proposed new taxes on banks and Basel III proposals for tightening capital requirements for banks.
Reuters