The euro slid for a third straight session against the dollar on Tuesday, hitting a near three-week low as Greece's surprise call for a referendum on its latest rescue package fuelled fears of an imminent default. The Greek government faced possible collapse as ruling party lawmakers demanded Prime Minister George Papandreou resign for throwing the nation's euro membership into jeopardy with a shock call for a referendum.
Caught unaware by his high-risk gamble, the leaders of France and Germany summoned Papandreou to crisis talks in Cannes on Wednesday to push for a quick implementation of Greece's new bailout deal ahead of a summit of the G20 major world economies. While the euro pared losses against the dollar after a media report said there was growing opposition from Greek lawmakers for the prime minister's bid for a referendum, it hovered at $1.3746, or 0.8 percent lower on the day.
"A report that the Greek referendum idea was all but dead seemed to get a response from markets. We saw a bit of a short squeeze in the euro and stocks responded positively as well," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey. The euro had earlier fallen to as low as $1.3608, its weakest level since October 12, but losses were curbed after French President Nicolas Sarkozy and German Chancellor Angela Merkel in a phone conversation agreed that they were committed to last week's EU decisions.
Greece's move drew a howl of protest from European leaders. Germans expressed fury and frustration, with political leaders saying it could plunge Greece into bankruptcy and force it out of the eurozone. "They will probably face increased criticism from their European counterparts who have worked hard to strike a deal," said Kathy Lien, director of currency research at GFT Forex in Jersey City, New Jersey.
Riskier assets fell across the board, including commodities and global equities, and the euro was on track to post its largest three-day drop since May 2010. Prices of German Bunds and US Treasuries, traditional safe-havens, rose. Both the dollar and euro are vulnerable this week given the ECB on Thursday may hint at monetary easing at its monthly policy meeting.
The US dollar, nevertheless, firmed versus the yen, but was off Monday's three-month high as the impact of Japan's massive intervention slightly faded. It last traded at 78.32 yen, up 0.2 percent, with market players still wary of further yen selling by Japanese authorities. The euro, meanwhile, was down 0.6 percent versus the yen at 107.64, erasing some of the gains made during intervention.
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