Euro dips to four-month low as Greek impasse fans exit worry

Tue May 15, 2012 2:39am EDT
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By Hideyuki Sano

TOKYO (Reuters) - The euro slipped to a four-month low against the dollar on Tuesday as a political stalemate in Greece stoked fear the country may renege on bailout pledges made to international creditors and exit the currency bloc.

Concerns about slowing Chinese and global growth also drove down higher-yielding currencies and boosted the safe-haven dollar and yen, with the Australian dollar flirting with a five-month low against the U.S. currency.

Greek Party leaders are expected to convene at 2 p.m. (1100 GMT) but there is little hope President Karolos Papoulias's proposal to form a technocrat government would end the stalemate, making a new election the most likely outcome.

Many market players think a fresh election will make it more likely for Athens to ditch its bailout pledges and hence the euro, even though euro zone finance ministers dismissed talk of Greece's exit as "propaganda and nonsense".

"Another election is likely to make fiscal rebuilding less likely," Daisuke Karakama, market economist at Mizuho Corporate Bank, said.

The euro gained a foothold around support at $1.2827, the 76.4 percent retracement of its rally earlier this year from $1.2624 to $1.3486.

The common currency last stood at $1.2827 after having fallen as low as $1.2814, its lowest in nearly four months.

A clear break of that retracement level could open the way for a test of the January low of $1.2624, though some analysts said the euro could enjoy some rebound in the short term, having fallen more than three percent so far this month.   Continued...

A money counter counts 100 lats (approximately $200) banknotes at Latvia's Central Bank office in Riga June 5, 2009. REUTERS/Ints Kalnins