The dollar and yen rose against the euro on Tuesday in a safe-haven bid ahead of upcoming US third-quarter corporate earnings results and on uncertainty about Greece and Spain. Gains in the safe-haven US and Japanese currencies accelerated after Wall Street stocks fell further, with technology shares hit by several brokerage downgrades of companies including Intel.
Repeated warnings about the economy - the latest coming from the International Monetary Fund - have left investors cautious ahead of what could be a disappointing US earnings season. Aluminium company Alcoa Inc, became the first Dow Jones industrials component to report results when it posted third-quarter earnings per share of 3 US cents from continuing operations excluding items. Analysts' consensus estimate was for break-even.
The reaction to the news was muted on foreign exchange markets but investors may pay more attention when International Business Machines, the first large technology bellwether, reports on October 16. Technology is the largest component of the Standard & Poor's 500 index. The euro fell 0.7 percent to $1.2880, well below a two-week high of $1.3071 hit on Reuters data on Friday. Traders cited bids below $1.2900 and offers around $1.3000, suggesting a narrow range for the euro.
Concern about Greece also resurfaced after European Central Bank chief Mario Draghi told a European Parliament committee that Greece has made progress on reforming its economy, but has more work to do. In Athens, German Chancellor Angela Merkel said the pace of reform in Greece has accelerated and that the tough path Greece is on will pay off. Her visit was marred by clashes between police and protesters.
Uncertainty about whether and when Spain will request aid also weighed. A request would activate the European Central Bank's bond-buying program to help troubled euro zone economies and is widely seen as the next step forward for Europe. Adding to the negative sentiment, the IMF cut its global growth forecasts for the second time since April and warned US and European policymakers that failure to fix their economic ills would prolong the slump.
"The tone of the market still feels greatly uncertain as we head into earnings season in the United States and indeed the market is now focusing its attention that way as it seeks out bad news wherever it can find it," said Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut. Against the yen, the euro lost 0.9 percent to 100.75 yen, well below Friday's two-week high of 102.80. It also dropped 0.5 percent against sterling.
The euro hit a three-week high against the Swiss franc as traders cited a media report that US custodial banks were set to impose a penalty on Swiss and Danish crown deposits. A spokesman for Bank of New York Mellon confirmed a charge for Danish crown deposits, while a spokesman for State Street said negative rates would apply for both Swiss francs and Danish crown deposits. Both currencies have been safe havens for investors fleeing the euro zone debt crisis. While the Swiss National Bank imposed a floor on the euro/Swiss franc pair at 1.20 francs to curb inflows, Denmark's central bank has cut official rates.
The euro rose as high as 1.2143 francs earlier in the day and was last up 0.1 percent at 1.2112. The dollar gained 0.8 percent to 0.9400 franc. Against the yen, the dollar slid 0.1 percent to 78.22 yen, moving further away from a two-week high of 78.87 set on Friday.