Euro Slips on Greek Concerns

The euro fell slightly as Greek Prime Minister Lucas Papademos struggled to strike a political agreement on new austerity measures needed to secure external financing.

However, the currency bounced back from its intraday low after German Chancellor Angela Merkel indicated the European Union would not allow a potentially destabilizing Greek bankruptcy.

The common currency weakened to its lowest level against the dollar since Feb. 1 after Mr. Papademos failed over the weekend to reach an agreement with local political party leaders on spending cuts and a 20% reduction in the minimum wage, which is needed to qualify for €130 billion ($171.07 billion) in aid from the so-called troika of official lenders, which includes the European Commission, the International Monetary Fund and the European Central Bank.

Greece would potentially have to default on a €14.4 billion redemption next month without the fresh round of financing from public sector European creditors. After weakening during the morning, the euro selloff reversed when Ms. Merkel said the EU "can't accept" a Greek bankruptcy, in comments broadcast on German television. The Greek government later announced plans to lay off 15,000 workers by the end of 2012.

Late Monday, the euro was at $1.3130 from $1.3159 late Friday. The common currency traded at ¥100.54 from ¥100.83. The dollar was at ¥76.57 compared with ¥76.60. The U.K. pound bought $1.5825 from $1.5815, while the dollar traded at 0.9187 Swiss franc from 0.9181 franc.

The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 79.04 from 78.924.

"It's a game of chicken between Germany and Greece at the moment, so to the extent that Merkel says positive things, it makes it sound like everything is going to be OK," said Adnan Akant, head of foreign exchange at money manager Fischer Francis Trees & Watts, a New York unit of BNP Paribas.

At the same time, the country is seeking an agreement with private sector creditors for a proposed €100 billion write-down, which is also a precondition for the new troika loan. The troika lenders have also pressed for the Greek government to recapitalize banks and boost competitiveness.

The euro rallied in January from as low as $1.2624 on rising expectations for a Greek agreement, but the rally stalled later in the month when the currency touched $1.3235, its 2012 high. Since then it has held in a range around $1.31 as investors look for assurances on whether Greek leaders will be able to secure a new European loan.

"There's no reason to believe that the negotiations between Greece and the troika over additional funds were ever going to go completely smoothly," said Alan Ruskin, a currency strategist at Deutsche Bank in New York. "It's going to create a lot of noise in the interim."

Markets will also watch for policy decisions from key central banks this week. The European Central Bank is forecast to hold its overnight rate a 1% at its meeting on Thursday, while the Royal Bank of Australia is expected to cut its benchmark lending rate to 4% on Tuesday, according to UBS. The Aussie dollar fell to $1.0726 from $1.0772 late Friday.

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