The euro slipped against the dollar and yen Monday as traders became more skeptical about the potential for meaningful progress at the European leaders' summit later this week and as Spanish and Italian bond yields edged higher.
The euro was recently trading at $1.2487 compared with $1.2574 late Wednesday in New York, according to trading system EBS. The dollar was at ¥79.89 compared with ¥80.43, while the euro was at ¥99.75 compared with ¥101.14. Meanwhile, the pound was trading at $1.5554 compared with $1.5581 late Wednesday in New York.
An initial wave of selling in early European trading knocked the common currency down to the $1.25 level and it has since continued to grind lower, dragging the euro below ¥100.
Other currencies which tend to rise or fall according to how optimistic investors feel also came under pressure, including sterling and the Australian dollar. The Aussie dollar traded back below parity with the greenback for the first time since June 15.
With little in the way of economic data for currency traders to latch onto and Spain's formal request for European Union aid Monday long expected, attention was focused firmly on Thursday's EU summit.
"The EU Summit will dominate the week ahead, but we think that markets may be over-optimistic on its outcome. We expect discussions of longer-term European integration plans to occur, but without concrete action or implementation plans," said Hans Redeker, chief currency strategist at Morgan Stanley in London.
Although the high number of negative bets against the euro means it could respond more strongly to a positive surprise than to a negative one, as some of these bets are reversed, the market will need to be satisfied that the underlying causes of the euro-zone debt crisis are being addressed for the euro to really benefit, said Michael Sneyd, currency strategist at BNP Paribas. "We would need to see both a long-term solution for the euro zone as well as some short-term solutions such as beefing up the firewall, changes to Greece's program and what to do about Spain."
Elsewhere, the Reserve Bank of India was suspected of stepping into the market to shore up the rupee, which weakened against the dollar as the market shrugged off government and central bank efforts to boost capital inflows and support the fast-sliding local currency.
India's central bank announced it will allow greater foreign investment in local bonds and lifted the total amount that Indian companies can borrow from overseas banks to $40 billion from $30 billion.
U.S. data will be closely watched in the session ahead following the weak June Philadelphia Fed reading Friday. At 0830 ET, there is the May Chicago Fed index, followed by new home sales in May at 1000 ET and the June Dallas Fed Index at 1030 ET.
The Bank of Israel is scheduled to announce its monetary policy decision at 1030 ET with a quarter-point cut to 2.25% seen as quite likely.
—Dow Jones Technical Strategist Francis Bray contributed to this article.
