Euro retreats in Asia

The euro slipped on Wednesday, retreating from a 4 1/2-month high against the dollar as worries about debt problems in Portugal and Ireland sapped appetite for the currency and its near-term outlook is seen hinging on whether Lisbon's make-or-break attempt to garner parliamentary support for its austerity measures will succeed.
Portugal's political crisis has quashed the latest rally in the euro, which climbed to $1.4249 earlier this week, but some analysts said any selling in the euro if the government fails was unlikely to extend far below $1.41, given expectations EU leaders are close to agreeing the details of a debt-rescue fund, while eurozone interest rates are widely seen rising next month.
Lisbon's parliament will vote on the government's latest austerity measures on Wednesday and Prime Minister Jose Socrates has threatened to resign if the opposition fails to approve the measures, setting the stage for a potential collapse of his minority government a day before a European summit where leaders are due to discuss steps to deal with debt problems.
Also causing some uncertainty about the health of the eurozone were rumours that Allied Irish Banks, which has been effectively nationalised, was planning to miss a coupon payment, driving the premium that investors demand to hold Irish two-year bonds to a euro-era high. AIB said in a statement that it would pay the coupon due on Wednesday as scheduled.
The euro traded at $1.4160, 0.2 percent lower on the day. A further slide was blocked by suspected bids from model funds in the $1.4140/50 region, while an option barrier at $1.4250 capped the euro's advance. On charts, the euro was poised for a pull-back to support at $1.4030/50 - intraday peaks from earlier this month - but only a drop below the $1.40 level would suggest a peak had been put in place and its solid uptrend was reversing.
The euro has rallied nearly 6 percent against the dollar so far this year, and is hovering on the threshold of its highest since January 2010. Given ongoing debt problems plaguing weaker eurozone countries, some analysts anticipate a retreat in the euro in the coming months, adding that current levels offered a good chance to lock in profits.
Sterling traded at $1.6362, holding near a 14-month high hit on Tuesday after stronger-than-expected British inflation data increased the chances of an interest rate rise within the next few months. Traders said the pound may rise as far as $1.65 if Bank of England minutes, due later in the day show a more hawkish bias among policymakers. Investors were also anticipating the UK government's 2011 budget, to be announced on Wednesday, to see if it will bolster faltering growth without compromising on a tough austerity programme to get public finances back in order.
The dollar slipped a touch on the day to 80.90 yen, but stuck close to 81.00 yen region as traders turned cautious about buying the currency after the Group of Seven (G7) countries sold it last week in their first joint intervention in more than a decade.
On the upside, heavy exporters' offers are already lined up above 82.00 yen, with more seen around 83.00 yen, and an options trader at a Japanese bank on Tokyo said he suspected the balance of dollar/yen flows would be tilted towards dollar selling during the last stretch of Japan's financial year, ending this month, as Japanese exporters are likely to sell.
The last week of March commonly sees a mix of dollar flows including exporter selling and buying by investors related to overseas investments in the new year. Still, market participants have been speculating that such buying demand may be limited this year given the recent drop in Japanese equities, which could sap domestic investors' risk appetite.