Concerns about a Greek default could hobble the euro this week, as the country struggles to implement belt-tightening measures while forging an agreement with its private bondholders.
After weeks of uncertainty, Greece's interim government brokered a provisional deal to implement more than €3 billion ($4 billion) in unpopular austerity measures to secure a €130 billion bailout. That helped vault the euro to an eight-week high at $1.3322 Thursday.
But the common currency's rally faltered Friday as rioting in Athens streets accompanied protracted political haggling over the deal's provisions. That raised questions about whether Greece can reach a final, default-averting agreement with its financial rescuers in the European Union and International Monetary Fund before it faces a series of bond-payment deadlines next month.
As Greece fights to stay afloat, a small but vocal number of analysts wonder whether Greece can remain in the euro zone. Late Thursday, Greek Finance Minister Evangelos Venizelos warned that his country faced a choice of acceding to international austerity demands or withdrawing altogether from the 17-nation currency bloc.
"Even a near-term resolution in Greece is certainly not a resolution of the broader crisis, for Greece or the rest of the euro zone," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. Traders were encouraged to scale back on bets against the euro as high-yielding assets surged earlier in the week, but Mr. Esiner says some investors might now be feeling buyer's remorse.
"We're back to a scenario where investors are looking more skeptically at the big picture, and that scenario favors the dollar again," Mr. Esiner said, noting the greenback's unchallenged status as a safe harbor during times of global turmoil.
The Greek parliament was to vote on the plan late Sunday amid political divisions and street protests. Euro-zone finance ministers are expected to convene Tuesday to review the deal, which should lead to a final approval by Greece's international lenders.
An agreed path toward slashing public spending and cutting wages would pave the way for a bond swap between the government and private-sector creditors that has been stalled for weeks. Amid rising pressure on the European Central Bank to take part in a Greek debt restructuring, the country faces a €14.5 billion bond repayment on March 20 that will be defaulted upon unless Greece obtains its bailout.
As a result of Europe's debt turmoil, economic indicators have largely taken a back seat to headlines out of the euro zone. On Wednesday, the 17-nation currency bloc will report gross-domestic-product figures from the final quarter of last year. Most economists expect to see a decline, which could mark the beginning of what many believe will be a recession this year.
Greece is faring the worst among the nations of Europe that have accepted bailout funds. The Hellenic republic's economy is contracting sharply and joblessness has risen above 20%. Some market watchers say the economic demands being placed on Greece may be taking too big of a toll on the population, and might not be worth the pain.
"We're at the point where austerity measures are putting the people of Greece into a depression," said Mark Grant, managing director of Southwest Securities, who believes the country should default on its debts and withdraw from monetary union.
"In my mind, the economics are unsustainable," he added.
On Friday, the dollar rose against most rivals, reversing losses in recent days, after euro-zone finance ministers delayed approval of the bailout package for Greece.
Late Friday in New York, the euro was at $1.3199 compared with $1.3286 late Thursday. The pound traded at $1.5755 compared with $1.5818, while the dollar bought 0.9166 Swiss franc from 0.9118 franc.
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