Euro slumps on uncertainty over Greek bailout

NEW YORK Fri Feb 10, 2012 2:25pm EST

One Euro coins are pictured after being minted at the Austrian national mint in Vienna April 8, 2009.  REUTERS/Leonhard Foeger

One Euro coins are pictured after being minted at the Austrian national mint in Vienna April 8, 2009.

Credit: Reuters/Leonhard Foeger

NEW YORK (Reuters) - The euro skidded on Friday after a Greek far-right party leader refused to back a bailout agreement, raising fears once again that Greece could face a chaotic default on its debt.

The pessimistic tone of the market starkly contrasted with the previous session in which optimism over a Greek deal lifted the euro to an eight-week high against the dollar. Sharp daily swings in sentiment have largely defined the currency market in recent weeks, causing the euro to trade within a narrow range.

The comments from Greece's far-right party leader caused the euro to extend earlier losses after euro zone finance ministers sought further measures from Greece before signing off on a 130 billion euro bailout package.

"Although the Greek saga continues and risks of default remain, the market is relatively confident that a deal will be made as EUR/USD continues to hover near its year-to-date highs," said Boris Schlossberg, director of currency research at GFT Forex in Jersey City, New Jersey.

The situation, however, remains politically charged and if the Greek parliament balks at approving the austerity measures imposed by its lenders, the euro could move sharply lower, he said.

Greece must do whatever it takes to approve a bailout deal and avoid catastrophe, Greek Prime Minister Lucas Papademos said, adding that cabinet members who disagree have no place in the government.

"Time is clearly running out for any further negotiating maneuvers as next week appears to be the hard target deadline for a Greek bailout deal," Schlossberg said.

Political parties in Athens on Thursday struck a long-awaited deal on harsh austerity steps necessary for a second rescue package and a debt swap deal with Greece's private bondholders is thought to be close.

But George Karatzaferis, head of the LAOS party, said on Friday he cannot vote for the loan agreement. Reports of resignations by government ministers in protest against the bailout agreement added to concerns.

In New York, the euro was down 0.8 percent at $1.3178, pulling well below the two-month high on Thursday and below its 100-day simple moving average, currently at $1.3328, using Reuters data.

"It's not entirely surprising to see negative news overnight trigger a pretty sharp unwinding of risk," said Omer Esiner, chief market strategist at Commonwealth Foreign Exchange in Washington. "A lot of the uncertainty that has hung over markets for the better part of last year remains largely in place. This is a dose of reality for people."

The euro had seen strong gains since hitting a 17-month low in January as the market bet Greece would hammer out its second bailout deal with international lenders.

But Eurogroup Chairman Jean-Claude Juncker said a further 325 million euros of spending cuts needed to be found and, with Greek elections looming, political assurances were needed that the plan would be implemented.

The Eurogroup includes the finance ministers of the countries in the euro zone.

For the week the euro has eked out a 0.5 percent gain against the dollar.

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THE AUSSIE SLIDES

The Australian dollar has underperformed, pressured by euro zone concerns as well as a dovish quarterly statement from the Reserve Bank of Australia and data showing a slump in Chinese imports.

The Aussie was last down 1.1 percent to $1.0664, after falling to its lowest in more than a week and well below a six-month high reached this week.

Against the yen, the euro was down around 0.9 percent on the day at 102.24 yen, off a two-month high hit on Thursday.

Meanwhile, Japanese Finance Minister Jun Azumi said the exchange rate remained out of sync with economic reality and repeated he was ready to counter excessive speculation.

The dollar rose to its highest against the yen in two weeks before surrendering gains. It was last at 77.62 yen, down 0.1 percent. For the week, the dollar gained 1.5 percent against the yen, the best week since November 6.

(Additional reporting by Nick Olivari and Steven C Johnson; Editing by Kenneth Barry)

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