LONDON: The euro fell broadly on Monday, touching a three-week low versus the dollar as worries about Greek and Italian public deficits and a regional election rout for Germany's ruling party added to concerns over the euro zone's debt crisis.
The shared currency fell to 1.4108 on trading platform EBS, its weakest since mid-August. It pared losses as Asian sovereign accounts stepped in to buy around $1.4110, while option-related bids were seen placed into $1.4100.
Other currencies perceived to be higher risk, including the Australian and New Zealand dollars, also took a hit against the dollar as Friday's soft U.S. employment data fuelled concerns that the U.S. economy may be sliding back into recession.
The suspension of an EU/IMF mission to Greece last week raised questions over whether Greece can cut its budget deficit enough to secure another tranche of bailout funds, while Italy's inability so far to meet its budget commitments continues to hurt its sovereign bond market.
Downside risks to the euro increased after a big fall in support for Angela Merkel's Christian Democrats in a regional vote in Mecklenburg-Vorpommern on Sunday highlighted the German chancellor's waning popularity and many Germans' dissatisfaction with having to contribute to euro zone bailouts.
"For the euro the downside is still the dominant driver as all the commentary is negative but as yet there isn't enough of a catalyst in the news flow to take it out of its range against the dollar and below $1.4000," said Geoffrey Yu, currency strategist at UBS.
He said that the current neutral speculative positioning data for the euro reinforced the view that the euro may stay rangebound in the near-term.
Asian sovereign buying in euros, along with Russian and eastern European demand ahead of $1.4110, helped support the euro. Technical analysts also highlighted support there from the 61.8 percent retracement of the euro's July-August rally.
The euro's losses pushed the low-yielding dollar to 75.074 versus a currency basket, its highest since early August, though traders said further currency moves may be capped by a U.S. public holiday on Monday.
The single currency fell nearly 1 percent to below 1.1100 Swiss francs as economic concerns in the euro zone along with evidence of a continued slowdown in the U.S. economy raised demand for safe-haven assets.
The franc's broad gains in the past week or so have raised expectations the Swiss central bank may have to initiate more measures to weaken the currency with traders on edge for any renewed intervention in franc forward markets.
MORE EURO RISKS The euro faces a week packed with event risk. Implied options volatility for the euro rose to 2-week highs to reflect increasing nerves over a further fall in spot.
Germany's constitutional court will rule on Wednesday on suits claiming Berlin is breaking German law and European treaties by contributing to multi-billion euro bailouts of Greece, Ireland and Portugal.
Markets will also focus on a slew of policy announcements by major central banks, given strong indications the global economic recovery is stuttering.
Analysts said the euro will face more selling if the European Central Bank, which will make a policy announcement on Thursday, suggests increasing concern that a deepening debt crisis is cranking up overall risks to the euro zone.
"The biggest downside risk for the euro is for a more dovish statement from the ECB, highlighting the impact of negative developments of late and potentially suggesting that the slowdown that we've been seeing is here to stay," said Valentin Marinov, currency strategist at Citi.
"This would open the door to speculation for (early) rate cuts, and that's not what the market is expecting," he said, adding that this could trigger a test of $1.40 in euro/dollar.
Investors also awaited plans due on Thursday from U.S. President Barack Obama to kickstart job creation.
Aggressive measures would be seen as positive for the global growth outlook, but many in the market say appetite is low for expensive spending given that the government's fiscal house is in disarray.
