The euro fell to a near two-month low against the US dollar on Monday on uncertainty over a Greek vote on reforms needed to secure international aid and as investors awaited the US elections on Tuesday. The technical outlook for the euro was also bleak after the currency broke below its 200-day moving average, suggesting further near-term losses.
Greece's government presented its latest austerity package needed to secure international aid to parliament on Monday, but will struggle to get it approved in a vote expected on Wednesday as an exasperated public launches a week of strikes and protests.
"The main driver of the story is euro concerns. Mostly I think the fear is something is going to go wrong with the Greek austerity vote," said Steven Englander, head of G10 strategy at Citi.
Approval of the reforms and the passage of the 2013 budget are crucial to unlocking 31.5 billion euros in aid from an International Monetary Fund and European Union bailout that has been on hold since the summer.
"Without the additional funds, the country would be put back on the path toward an exit from the euro," said Karl Schamotta, senior strategist at Western Union Business Solutions in Calgary.
The euro hit as low as $1.2765 on Reuters data, breaking below a reported options barrier at $1.2800 and stop loss sell orders at $1.2780 to mark its lowest since September 11. It was last at $1.2791, down 0.35 percent on the day.
Traders said if Greece failed to pass the reforms package, the euro could drop to $1.2625/50. But Schamotta said given the stakes, "it is unlikely that the proposed legislation will fail" and a successful vote may help the euro drift up toward $1.30 before the end of the week.
Chartists said the euro, having broken below the 200-day moving average around $1.2828, could face further losses, although near-term support is seen at the September 11 low of $1.2753.
If the euro closes below the 200-day moving average it would be the first time since September and could signal a departure from its recent $1.28 to $1.32 range.
The European Central Bank meets this week, with no policy moves expected, but many investors said the bank will need to further loosen monetary policy given the deteriorating economic backdrop.
Ken Dickson, investment director of currencies at Standard Life Investments in Edinburgh, which helps manage $263.9 billion, said the ECB's quarterly Bank Lending Survey released last week suggests banks are still tightening lending conditions in Europe, which makes it harder for the economy to recover.
Euro weakness drove the dollar to a two-month high against a basket of currencies. The US dollar index rose as high as 80.843, the strongest since September 7, and last was up 0.18 percent to 80.735.
Uncertainty about the US presidentail election, in which President Barack Obama and Republican challenger Mitt Romney are neck and neck in the polls, encouraged safe-haven flows into the dollar.
The yen, often sought after during times of uncertainty, gained. The dollar slipped 0.20 percent to 80.28 yen, having hit a four-month high of 80.67 yen on Friday, around a 50 percent retracement of its decline from March to September.
"Dollar/yen is the most sensitive to the outcome of the US elections," said Beat Siegenthaler, currency strategist at UBS in Zurich. "While expectations of a Romney win have helped the dollar rise above 80 yen, there has been some paring back of those" expectations.
Some in the markets say Romney is opposed to the Federal Reserve's bond-buying program, which has anchored yields. So if he won, Treasuries could sell off, driving yields and the dollar higher.
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