By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) — The euro pared losses against the U.S. dollar on Monday and came off a decade-low against the Japanese yen as traders parsed through more comments from officials about Greece.
The single European currency was under heavier pressure earlier on fears of a downgrade for French banks and signs that Germany is preparing for a default by Greece.
The euro EURJPY -0.16% traded at 105.14 yen, a decline of 0.5% from Friday. The euro dropped as low as ¥103.88, its lowest level since mid-2001.
Against the dollar, the euro EURUSD +0.10% edged down to $1.3616, from $1.3659 in late North American trading Friday. It fell to $1.3495 during the European session.
Analysts also noted that traders may have been forced to reverse some positions as certain levels were breached earlier.
The dollar index DXY +0.27% , which measures the greenback against a basket of six other currencies, turned back up to 77.389, compared to 77.175 late Friday.
European Central Bank President Jean-Claude Trichet, speaking after a gathering of central bankers in Basel, stressed that central banks across the globe “stand ready” to act if needed to bolster the global economy. Read more about ECB’s Trichet.
Weighing on the shared currency during the European session, French bank stocks were under heavy pressure, after a Bloomberg News report on Saturday said the three banks could face a downgrade from Moody’s Investors Service due to exposure to Greek sovereign debt. Read Europe Stocks.
“The euro is now better correlated versus the credit quality of banks rather than peripheral bond spreads, but inherently the two are very much inter-linked with the sovereign crisis squarely behind the current banking crisis,” said Simon Smith, chief economist at FxPro in London, in emailed comments. “The euro’s Teflon coating, which protected it so well over the past year, appears to be flaking off rapidly.”
The euro slipped Friday after Juergen Stark, a German member of the ECB’s six-member executive board, resigned unexpectedly. The ECB said Stark stepped down for “personal reasons” but news reports tied the move to discord within the ECB over the bank’s bond-buying program. Read more on Stark resignation.
Also grabbing attention were news reports said German officials have been preparing for a potential Greek default. Read more on Greek default fears.
EURJPY 105.0750, -0.1667, -0.1584%
Euro at decade-low vs. yen
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“Should Greece be forced to default, the news would no doubt push the euro-dollar lower in the near term as speculators sell the unit in knee-jerk fashion, but the currency may actually rebound over the intermediate term horizon as [the] monetary union gets rid of its weakest credit risk,” said Boris Schlossberg, director of currency research at GFT. “In the meantime, the uncertainty over the events on the ground will likely keep trade highly volatile for the rest of this week.”
The euro has lost 5.3% against the dollar this month as worries about European debt keep popping up and Trichet has indicated the ECB may be done raising interest rates, pulling out a major support for the shared currency.
The weekend meeting of Group of Seven finance ministers and central bankers in France provided no concrete plan to address fears over weakening global growth or rising currency tensions. A joint statement said the G-7 would take “all necessary actions to ensure the resilience of banking systems and financial markets.”
The dollar USDJPY -0.26% pared losses against the yen to trade at ¥77.023, down from ¥77.48 late Friday.
The British pound GBPUSD -0.12% traded at $1.5816, down from $1.5877.
Deborah Levine is a MarketWatch reporter, based in New York.
William L. Watts is a reporter for MarketWatch in Frankfurt. Sarah Turner in Sydney contributed to this report.
