Euro slips in London

The euro dipped against the dollar on Monday as political turbulence in Italy stoked concerns about the region's near-term outlook. The euro was seen susceptible to further losses as the gap between euro zone peripheral bond yields and their German counterparts widened after Italian Prime Minister Mario Monti said on Saturday he would resign once the 2013 budget was passed.
An election in February looks probable, raising questions over who will navigate the euro zone's third-biggest economy out of the debt crisis The euro was down 0.1 percent on the day at $1.2910, not far from a two-week low of $1.2876 set last Friday. Traders cited stop-loss orders above $1.2920 and near-term support at $1.2842, its 233-day moving average.
The euro posted its biggest weekly losses against the dollar in a month last week, as speculators bet against the single currency on expectations that the European Central Bank will cut interest rates early next year. "The timing of the Italian news is a surprise and the short term response has been negative for the euro, like we have seen in 10-year Italian bond yields," said Steven Saywell, global head of FX strategy at BNP Paribas.
Ten-year Italian borrowing and default insurance costs jumped on Monday, pushing Spanish 10-year yields higher after Monti's announcement hurt riskier European debt. While Italy has nearly completed its planned bond market funding for this year, the latest political turmoil could hinder its ability to borrow around 420 billion euros in 2013. Concerns about core euro zone countries also weighed on the single currency. Germany's Bundesbank last week slashed its growth outlook for Europe's largest economy to 0.4 percent in 2013 from an early estimate of 1.6 percent.
Caution about fresh monetary easing steps from the Federal Reserve later this week limited the dollar's advance. "People are just positioning themselves for the last decent week we could have in terms of data before getting into the Christmas period," said David Bloom, global head of FX research at HSBC. "The Fed meeting will be important." Many economists expect the Fed to announce on Wednesday monthly bond purchases of $45 billion, signalling it will keep pumping money into the economy to bring down unemployment.
Signs Washington policymakers are no closer to averting tax hikes and spending cuts set to take hold next year, which analysts say could push the US economy back into recession, also weighed on the dollar. The greenback fell 0.2 percent on the day to 82.25 yen as traders said macro funds cut long dollar positions.