LONDON—The euro fell against most currencies as Greek debt concerns mounted, prompting investors to flee to the relative safety of the dollar.
The single currency traded recently at $1.4315 from $1.4440 late Tuesday in New York. The dollar was at ¥80.68 from ¥80.49, while the euro was at ¥115.47 from ¥116.24. The U.K. pound was at $1.6275 from $1.6368.
The euro fell sharply as the clock ticked down on muddled efforts to find a solution to the Greek debt crisis, with little sign of a breakthrough.
News that euro-zone officials remain deeply divided over the issue of a second Greek bailout ahead of a self-imposed June 20 deadline caused investors to contemplate the worst possible outcome of a disorderly Greek default.
It also raised the specter of renewed contagion to other indebted euro-zone nations, weighing on European share prices and pushing up the cost of insuring against Greek, Portuguese and Irish debt against default to new record highs.
"I think the market was greedy for a neat solution by next week, and now it looks like that's not going to happen," said Daragh Maher, a currency strategist at Credit Agricole in London. "But at the end of the day, I just don't think the authorities will let Greece default."
The delay in the decision making process has made investors skittish and heralded a return of defensive trades, at least for this session.
Kit Juckes, a currency strategist in London, likened the situation to a hospital emergency room "on a coffee break."
Adding to creeping contagion worries was Moody's Investors Services Inc.'s decision to put three French banks under review, with a view to a potential credit rating downgrade due to their Greek bond exposure—a move which frayed nerves even further.
"The financial markets still fully expect the authorities to muddle through with some agreement and although we would tend to agree with that, the uncertainties have escalated," Derek Halpenny, a currency strategist at the Bank of Tokyo-Mitsubishi UFJ said in a note to clients.
Data showing industrial production in the 17-member euro zone rose unexpectedly in April failed to dent the single currency's decline.
Sterling also notched up losses against the dollar, dropping below $1.63 as traders concentrated on the negative after a mixed batch of U.K. unemployment figures. While the number of unemployed people in the U.K. fell by the largest amount in more than 10 years in the three months to April, the number of people claiming the Jobseeker's Allowance posted a sharper-than-expected increase.
Japanese Finance Minister Yoshiko Noda's warning that Japanese authorities are ready to step back in the market if volatility in the yen intensifies dovetailed with the positive dollar tone, weakening the yen.
Dollar traders will now be watching for the Empire State Manufacturing Survey and U.S. inflation data for May at 8:30 a.m. ET. The Treasury International Capital Data release at 9 a.m. will also be eyed, along with Industrial Production & Capacity Utilization at 9:15 a.m.
