LONDON—The euro came under pressure during European trading hours Tuesday as markets treated the proposal to beef up the euro zone's rescue fund with some skepticism.
Growing hopes for an expanded European Financial Stability Facility for the euro zone had supported the single currency in Asian trading, but European traders were more pessimistic about the chances of drawing a line under the region's crisis.
"What has actually changed? There's still no grand solution and that's why we're getting some slippage," said Daragh Maher, a senior currency strategist at Crédit Agricole in London.
The euro was recently trading at $1.3503 against the dollar, compared with $1.3532 late Monday in New York.
Euro-zone politicians aren't moving quickly or boldly enough for the market's liking. "Europe's leaders are trying to push EFSF reforms past reluctant parliaments and don't want to even think about EFSF-on-steroids until that's done," said Kit Juckes, chief currency strategist at Société Générale.
These misgivings were confined to the euro, though, as other commodity-linked currencies such as the Australian dollar and New Zealand dollar climbed in line with European equity markets, having tumbled last week.
With markets still nervous, headlines were a key driver for the euro. The single currency fell sharply after Spanish Finance Minister Elena Salgado dismissed talk of a huge expansion of the EFSF bailout facility to as much as €2 trillion ($2.706 trillion).
But a solid performance at Spanish and Italian Treasury bill auctions helped stem the euro's fall, as did Greek Prime Minister George Papandreou's vow that Greece will deliver on all its austerity pledges.
"We have seen some kind of consolidation and a bit more poise come into the market. But the underlying theme remains 'buy the dollar and sell the euro on rallies'," said Mr. Maher at Crédit Agricole.
Later Tuesday, the main focus will be on a Greek vote on property taxes scheduled for between 11:00 a.m.-1:00 p.m. ET. Slovenia and Cyprus also hold votes on the EFSF. Analysts say these need to go smoothly to prevent the euro from falling.
Among U.S. data releases, the August Chicago Fed Manufacturing Index is due at 8:30 a.m., the July S&P/Case-Shiller Home Price Index at 9:00 a.m. and U.S. September consumer confidence at 10:00 a.m.
Among other currencies, the dollar was at ¥76.45, compared with ¥76.37, while the euro was at ¥103.26, compared with ¥103.33. Meanwhile, the pound was trading at $1.5539 against the dollar, compared with $1.5565 late Monday in New York.
The ICE Dollar Index, which tracks the greenback against a basket of currencies, was at 78.108 compared with 78.000 late Monday in New York.
