The euro rebounded from a 3-week low against the US dollar on Monday as some risk appetite returned, but the European currency was pressured by worries over Greece's ability to secure financial aid. Traders said the rebound will be short-lived, with investors cautious before a summit of European Union leaders on Thursday and Friday.
European policymakers sent out conflicting signals at the weekend, with Germany urging Athens to solve its debt problems alone while Italy strongly backed EU support. The euro has slid more than 5 percent against the dollar since the start of the year as concern mounted over the debt sustainability in Greece and other smaller euro zone members.
Analysts said failure in a quick resolution over Greece during this week's summit, combined with lacklustre growth, will prevent the European Central Bank from raising rates well into next year and add more selling pressure.
"This will be an important event, but given the back and forth recently in Europe on how to help Greece, expectations are not very high," said Vassili Serebriakov, a currency strategist at Wells Fargo Bank, in New York. "This situation may linger for quite some time and even if they carry adjustments in Greece and other European countries, this means slower growth down the road," Serebriakov added. "It just doesn't bode very well for the euro."
UBS AG, one of the world's largest currency traders, sees the euro trading at $1.30 in three months. In late afternoon trade in New York, the euro was up 0.1 percent at $1.3548 after briefly touching a session high at $1.3568. Earlier the currency hit a three-week low at $1.3464. Traders cited short-covering as helping the euro after London trading wrapped up for the day.
The single currency traded at around 1.4310 Swiss francs, and touched its lowest in over a week against the yen. Splits within the EU over how to help Greece have prompted a sell-off in the single currency, knocking it down 10 percent since December. Germany's foreign minister, Guido Westerwelle, said on Monday he did not want any German or EU money put forward as financial aid for Greece as it would take the pressure off Athens to put its public finances in order.
The euro did come off the session low also after failing to breach the $1.3450 level, strong support since May 2009, said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey. The dollar remained rangebound versus the yen at 90.16, with support around 89.75 and resistance just over 91.00 yen. Greece said at the weekend it could go without borrowing until the end of April but is pressing EU partners for a standby package to help bring its borrowing costs down.
"This brinkmanship between Greece and the rest of the region is likely to come to a head this week," analysts at J.P. Morgan said in a note to clients. "If the rest of the region does not propose something that is acceptable to the Greeks at this summit, then the Greeks may well go to the IMF." Serebriakov said an IMF loan would at least be a concrete action and therefore might help the euro briefly.