* Le Pen narrows gap, French bonds sold
* Progress in Greece aid talk gives euro some relief
* Fed minutes next major focus
By Hideyuki Sano
TOKYO, Feb 21 The euro was on the defensive on
Tuesday, under pressure from fears that the French Presidential
election could upset the status quo, as rising
anti-establishment sentiment surfaced after last year's Brexit
and the U.S. election.
The premium that investors demand to hold French bonds
instead of German debt rose to its highest since late 2012 after
a poll showed Right-wing candidate Marine Le Pen narrowing the
gap with more centrist opponents.
The euro traded at $1.0614, having moved little on
Monday due in part to a holiday out U.S. investors. It has
fallen 1.75 percent so far this month.
"Everybody has learned lessons from last year's big
surprises. People probably don't want to take big risks. The
euro could face further pressure given there's still time before
the election," said Ayako Sera, market strategist at Sumitomo
Mitsui Trust Bank.
The first round of the French Presidential election is
scheduled on April 23, with the run-off between the top two
contenders on May 7.
The euro has been helped by the lack of progress between
Socialist candidate Benoit Hamon and hard-left candidate
Jean-Luc Melenchon in talks on cooperation.
Fears that cooperation on the left could lead to a run-off
between either Hamon or Melenchon and Le Pen, eliminating three
main moderate candidates, have dogged the euro since Friday when
the two leftists said they were discussing such cooperation.
Another comfort for the euro came from Brussels, where
Greece and its international lenders agreed to let experts work
out new reforms to Greek pensions, income tax and the labour
market that would allow Athens to eventually qualify for more
Greece needs a new tranche of financial aid under its 86
billion euro bailout by the third quarter of the year to meet
debt repayments, but agreeing on a fresh aid could prove
difficult as not only France but also Germany and possibly Italy
face elections later this year.
Against the yen, the euro traded at 120.15 yen,
after having fallen to 119.65 yen on Monday.
The dollar was little changed versus the yen at 113.16 yen
. It has been slipping, largely in tandem with a fall in
U.S. bond yields, after hitting a two-week peak of 114.955 yen
The minutes from the Federal Reserve's last policy meeting
due on Wednesday are the next key focus.
"The minutes could change the market's trend. They may have
talked about reducing the Fed's balance sheet. Or the minutes
may show some members are quite positive about rate hikes," said
Yukio Ishizuki, senior strategist at Daiwa Securities.
"That sort of signal could fan speculation of a rate hike in
March. If you look only at the firmness in recent U.S. economic
data, there's no reason not to raise rates in March," he said.
Money market futures are currently pricing in the
chance of a rate hike next month at about 20 percent.
The Australian dollar traded at $0.7689, not far
from its three-month high of $0.7732 touched last week,
supported by the firmness in commodity prices
(Reporting by Hideyuki Sano; Editing by Eric Meijer)