Feb. 6 (Bloomberg) -- The euro slid the most in a week against the dollar and yen on concern Greece's political leaders will fail to reach an agreement allowing the nation to receive a second bailout from international creditors. The 17-nation currency slid as Fitch Ratings said a Greek disorderly default "cannot be wholly discounted." The dollar rallied against all its major counterparts amid increasing expectations the U.S. central bank will avoid further easing of monetary policy. Australia's currency retreated for the first time in five days after the nation's retail sales declined. "We had such positive sentiment ending last week, and where has risk gone now, after just a few headlines out of Europe?" said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. "It just seems to continue with Greece, and there are shorts coming in to the market and selling the euro down." Shorts are bets a currency will decline. The euro fell as much as 1 percent to $1.3028, the steepest intraday decline since Jan. 30, and traded 0.9 percent weaker at $1.3034 at 9:05 a.m. New York time. It dropped 0.9 percent to 99.92 yen. The dollar was little changed at 76.60 yen. Greece's interim Prime Minister Lucas Papademos and the three party leaders backing his government met in Athens to discuss a detailed agreement for meeting conditions of an international rescue. Greek Crisis The yen rose against most of its major peers even after Bank of Japan Governor Masaaki Shirakawa said the nation's economic condition is "severe" because of deflation and the strong currency. The central bank is implementing monetary easing measures and will take appropriate steps as needed, he said in parliament in Tokyo today. Papademos struck a tentative deal yesterday with political parties to extend spending cuts after euro-area finance chiefs told them an increase in the 130 billion-euro aid package wasn't forthcoming. Greece's next tranche of payouts in maturing debt is due next month. "Fitch expects Greece to undertake an orderly debt restructuring, which would ensure that a payment system is in place," the ratings company said in a statement today. "However, a disorderly default, which may include an exit from the euro zone, cannot be wholly discounted." The euro has fallen 4.8 percent over the past three months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has advanced 3.6 percent and the dollar has gained 1.3 percent. Dollar Expectations The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, climbed 0.7 percent to 79.477. Traders are expecting the Fed to increase interest rates by 6 basis points in the next year compared with an expected reduction of 1 basis point at the start at February, according to a Credit Suisse Group AG Index. A basis point is 0.01 percentage point. U.S. government data showed on Feb. 3 that nonfarm payrolls rose by 243,000 in January, surpassing the 140,000 increase estimated by economists. The benchmark yield on 10-year Treasuries jumped 10 basis points to 1.92 percent that day, the biggest gain since Dec. 20. The central bank purchased $2.3 trillion of Treasury and mortgage-related bonds in two rounds of so-called quantitative easing, or QE, that ended in June. St. Louis President James Bullard is due to speak about inflation targeting today in Chicago. "The Fed is also taking into consideration the development of the labor market when making rate decisions," said You-Na Park, a foreign-exchange strategist at Commerzbank AG in Frankfurt. "There might be some speculation that the Fed might not need to ease further." Aussie Rates The Australian Bureau of Statistics said the country's retail sales fell 0.1 percent in December from a month earlier. Economists had estimated a 0.2 percent gain. The Reserve Bank of Australia will lower the benchmark interest rate to 4 percent from 4.25 percent in a meeting tomorrow, another survey of economists shows. The Aussie lost 0.7 percent to $1.0694 and weakened 0.7 percent to 81.95 yen. The Swedish krona fell against all but South Africa's rand as the implied volatility of three-month options on Group of Seven currencies rose for the first time in four days. The measure of volatility was 10.52 percent from 10.15 percent at the end of last week according to the JPMorgan Chase & Co. G7 Volatility Index. An increase makes investments in currencies with higher benchmark lending rates less attractive as the risk in such trades is that market moves will erase profits. Pound Declines The krona fell 1 percent to 6.7437 per dollar and deprecated 0.2 percent to 8.8069 per euro. The pound fell as the spending cuts that helped the U.K. preserve its AAA credit rating last year weigh on the currency as investors lose confidence that Prime Minister David Cameron will revive economic growth. Sterling had its worst January since 2008, decreasing 0.6 percent, after a 3.1 percent advance in the second half of 2011, according to Bloomberg Correlation-Weighted Indexes, a gauge of 10 developed-nation currencies. The pound was 0.4 percent weaker against the U.S. and Japanese currencies, trading at $1.5752 and 120.7 yen. It strengthened 0.3 percent to 82.94 pence per euro.

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