The euro edged up against the dollar on Tuesday, recovering some of its recent losses as traders reckoned the single currency's battering in past weeks over Greek public finance issues may have gone too far. Gains were limited, however, due to uncertainty over whether Greece's debt problems will be resolved quickly, as investors awaited developments at a meeting of European Union finance ministers on Greece on Tuesday.
Sentiment towards the single currency remained broadly negative, and market participants said the euro would be vulnerable to further falls. "There's been a relief bounce, as you could argue that the euro was a bit oversold," said Kenneth Broux, market economist at Lloyds TSB in London.
He said the euro's rise against the dollar was a repeat of movements last week, when it gained in the run-up to a pledge by European leaders to support Greece, although a lack of concrete details on the assistance ultimately triggered more selling.
"The market seems to be hoping for some clarity from the officials (later today), but it's running the risk of disappointment again," he said, adding he favoured selling the euro into any rally. Eurozone states urged Greece on Monday to take further steps to control its budget deficit by mid-March if needed, but did not elaborate on last week's EU pledge.
At 1204 GMT, the euro was up 0.4 percent on the day against the dollar at $1.3655, but hovered in range of Friday's nine-month low of $1.3532. Some in the market said an early rise in global stock markets and commodity prices suggested a slight recovery in risk demand and was helping to support the euro.
The euro has shed nearly 10 percent against the dollar since late 2009 on worries over the fiscal health of Greece and other eurozone countries, such as Portugal. This increased the number of net euro short positions to a record high last week, according to the latest data from the Commodity Futures Trading Commission.
The dollar index was down 0.3 percent at 80.099, below a seven-month high of 80.748 hit late last week. Traders said the euro was also helped higher against the US dollar in tandem with the Australian dollar and other perceived riskier currencies after Australia's central bank signalled further gradual interest rate rises.
But the Australian currency outshone the euro, hitting a decade high of A$1.5241, while it also hit its strongest vs the dollar in more than two weeks at $0.8877. Against the yen, the euro gained 0.4 percent to 122.83 yen, while the dollar was steady at 89.93 yen.
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