FOREX-Euro hits 2-month low with Greece deal still up in the air

Tue Nov 13, 2012 9:02am IST

* Euro zone, IMF fail to agree on a deal on Greece

* Greece to roll over T-bills on Tues to avoid default

* Another euro zone meeting planned on Nov 20

* Dollar index rises above Ichimoku cloud top

By Hideyuki Sano

TOKYO, Nov 13 (Reuters) - The euro dipped to a two-month low against the dollar on Tuesday after the euro zone and the International Monetary Fund failed to agree on a long-term plan to reduce Greece's debt, preventing disbursement of immediate aid to Athens.

While market players expect Greece to manage to get by this week without the aid money it was counting on, uncertainty over its short-term financing and long-term debt reduction plan was enough to put off investors.

"Few people would think that the euro zone will desert Greece. Still, the market will be frustrated by lack of a clear picture. I expect the euro to keep falling gradually," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.

With the aid funds from international lenders blocked, Greece plans to sell treasury bills on Tuesday to refinance a 5 billion issue maturing on Friday.

But some market players are not sure if they can take successful auction for granted.

"Although the market was indeed not expecting progress this time, there remain concerns about Greece's funding, putting pressure on the euro," Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo, wrote in a note to clients.

The euro fell to as low as $1.2676, having erased about four-fifths of its gains made after the European Central Bank unveiled a programme to buy government bonds with aim to buy Spanish debt on Sept.

It last stood at $1.2684, down 0.2 percent on the day, having constantly declining since it peaked at $1.3140 mid-October as the euphoria over the ECB's scheme faded.

Against the yen, the common currency fell to 100.74 yen , threatening to break below one-month low of 100.43 yen hit on Friday.

Euro zone finance ministers agreed to grant Athens two more years to reach its budget goal but the IMF and the euro zone are at loggerheads over who should shoulder the cost -- around 33 billion euro -- as well as on a longer-term target date to shrink the country's debt pile.

"If you extend the deadline by two years, you need more money, and countries like Germany and Finland will need to go to the parliament. The market will be concerned if all of that goes so smoothly," said a trader at a Japanese bank.

Eurogroup Chairman Jean-Claude Juncker said on Monday another Eurogroup meeting would take place on Nov. 20, before the EU summit from Nov 22, though officials said more negotiations could be required the week after that to nail down a new deal.

ANOTHER FISCAL PROBLEM

On top of concerns about the euro zone, fears of a recession in the United States if policymakers in Washington fail to repeal the fiscal cliff of automatic spending cuts and higher tax rates due to kick in early next year undermined risk sentiment, helping the dollar.

The dollar index, a measure of the dollar against a basket of six major currencies, rose to 81.20, its highest level since early September.

On the daily Ichimoku chart, the index rose above the top of the cloud, which stood at 81.054, in a major bull signal for the index.

But market players also said the fiscal cliff could haunt the dollar, if investors start betting the Federal Reserve will take easing steps to counter the effect of the fiscal cliff.

In such case, the dollar's weakness may become notable particularly against the yen, which often tends to outperform when risk appetite wanes because of Japan's net creditor status.

The dollar fetched 79.43 yen, little changed on the day and off three-week low of 79.07 yen.

The U.S. currency briefly rose to 79.64 yen on speculation Japanese Prime Minister Yoshihiko Noda may soon dissolve the parliament and hold a snap election by the end of year.

Opinion polls have shown the conservative opposition Liberal Democratic Party, whose leader Shinzo Abe is seen as putting more pressure on the Bank of Japan to ease its policy, is in the lead.

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