The euro surrendered all gains and traded lower against the dollar on Tuesday as expectations evaporated that a Greek debt restructuring deal could be close, while a resurgent yen raised concern Japanese authorities could intervene to weaken it.
The dollar fell to its lowest level against the yen since the last intervention in October, under pressure after the US Federal Reserve said last week it was likely to keep interest rates near zero until late 2014.
Mounting concerns that Portugal could follow Greece in needing a second bailout and debt restructuring began to undermine sentiment on the euro even before it hit a session low against the dollar. Those concerns persisted even though European Union leaders reached an agreement on Monday on the introduction of a permanent euro zone financial bailout mechanism, with details to be worked out at a later date.
The euro had earlier risen against the dollar after Greek Prime Minister Lucas Papademos said negotiators had made "significant progress" in talks for a deal to restructure government debt, with the aim of a definitive agreement by the end of this week.
"The euro could not hold its Asian market gains against the dollar as it broke through weak technical support at $1.3160," said Joseph Trevisani, chief market strategist at World-wide Markets, in Woodcliff Lake, New Jersey.
The euro was still on track for its best monthly performance since October, the last period it gained on the month, but was down 0.28 percent on the day at $1.3088, according to Reuters data. It peaked at $1.3213, not far from a six-week high hit last week of $1.3228. For the month, the euro is up roughly 1 percent against the greenback.
The euro faces resistance at that level and around the 38.2 percent retracement of its October-January slide, around $1.3235 using Reuters calculations.
Against the yen, the dollar hit a three-month low of 76.13, using Reuters data, well off last week's peak of 78.28. The dollar slipped 0.17 percent to 76.16 yen, with traders citing talk of dollar bids down towards 76.00 yen and stop-loss dollar offers below 75.80 yen.
Traders were also watching for any moves from the Swiss National Bank as the euro traded close to the 1.20 franc floor in euro/Swiss that policymakers have pledged to defend. The euro was last down 0.07 percent at 1.2040 francs, according to Reuters data with a session low of 1.2030 francs. The Tuesday trough marked the lowest since September 14, a few trading days after the SNB set the floor on September 6.