Political Vacillation Weighs On Euro, EM Currencies

Currency traders sold the euro Monday as financial markets buckled and Greek debt worries intensified after a weekend meeting of euro-zone finance ministers failed to impress.


The euro sank at the start of Asian hours after the Greek government received fresh warnings that it may not get the next EUR8 billion tranche of aid under a bailout agreement unless its budget goals are met, raising concerns that a Greek default might be nigh.

"Investors are concerned that the additional policy steps needed may not be agreed on time. In turn, fears that Greece could run out of money in coming weeks continue to weigh on euro sentiment," Citigroup said in a note to clients.

Without more aid, Greece is in danger of running out of money by mid-October. The country is due to make bond coupon payments totalling EUR750 million Tuesday.

The single currency extended its losses in European trade but stabilized as attention turned to a teleconference call between a troika of international experts and Greek officials due later Monday to review Greece's progress in meeting stringent budget goals.

"If Greece decides today that they are willing to speed up [its deficit reduction measures], then the troika officials would likely return to Greece this week," said TD Securities. "If Greece decides that they are not willing to go forward with these measures, they will have no choice to default as they simply don't have the cash to make it past mid-October."

The announcement that the teleconference call had been pushed back by three hours to 1600 GMT whacked the euro to the day's low against the dollar at $1.3634, although nagging uncertainties related to U.S. policy kept the losses in check.

"We are going lower from here, although I don't think we will go too far down ahead of the Fed's meeting (Wednesday)," said Daragh Maher, a currency strategist at Credit Agricole in London. "I think the $1.35 level will be the key focus."

Investors expect the Federal Reserve to announce some form of further monetary policy easing at the Federal Open Markets Committee meeting on Wednesday.

In earlier Asian trade, the Singapore dollar and Korean won were notable fallers against the dollar as investors piled out of relatively risky currencies, fearing the worst for the euro zone and wider global economy.

In the European time zone, the Hungarian forint and South African rand were also punished. The rand fell to its lowest level against the dollar since July 2010, while the forint hit its lowest level since July 2010 against the euro.

At 1042 GMT, the euro was trading at $1.3656 compared to $1.3802 late Friday in New York, according to EBS via CQG, and it was at Y104.78 compared to Y105.91. The pound was trading at $1.5731 from $1.5788. The dollar was trading at Y76.73 form Y76.82.

The ICE Dollar index was at 77.122 against 76.552.