Dollar flat; euro languishes amid Greek drama

The dollar posted a mainly flat performance Monday, while the euro traded above a two-month low set last week amid continued uncertainty over Greece’s ability to secure a long-delayed tranche of aid from its international creditors.

The ICE dollar index , which measures the U.S. currency against a basket of six major rivals, stood lately at 81.017, off slightly from 81.044 in North American trade late Friday.

U.S. bond markets and banks are closed Monday for the Veterans Day holiday, which is likely to keep volumes subdued, traders said.

The euro fetched $1.2724, up slightly from $1.2713 on Friday. The euro last week dipped below the $1.27 level for the first time since early September.

“Only a few weeks ago we assumed that the Eurogroup [of euro-zone finance ministers] would decide to release further bailout funds for Athens at their meeting in Brussels tonight—if not before that. That seems rather unlikely now,” noted Lutz Karpowitz, currency strategist at Commerzbank.

Indeed, Monday news reports showed euro-zone officials—including Luxembourg Prime Minister Jean-Claude Juncker, who chairs Eurogroup meetings—indicating that no definitive decision on the release of the aid payment of 31.5 billion euros ($40 billion) was likely.

That’s despite the Greek parliament’s approval earlier Monday of a 2013 austerity budget that includes more than €9 billion in additional budget cuts in the next year, reductions that are expected to further choke a recession-racked economy that recently saw unemployment top the 25% level.

The issue is complicated by the International Monetary Fund’s calls for a second haircut on Greek debt in an effort to make the country’s debt load sustainable, Karpowitz noted. The European Central Bank and some donor countries have rejected that step and continue to do so, leaving Greece’s creditors in a standoff.

“Even though [the euro/U.S. dollar pair] might find some support if the finance ministers sound benevolent toward Athens tonight, this is unlikely to suffice for a sustainable recovery (i.e., beyond the area of $1.2880),” Karpowitz wrote in a research note.

“On the downside, the support at [the June 29 high of] $1.2690 has so far held. Should the cliffhanger continue for much longer, though, this is also likely to be taken out,” he said.

Meanwhile, the dollar bought 79.45 Japanese yen , compared with ¥79.51 on Friday.

Data showed Japan’s economy contracted by 0.9% in the July-through-September period, or 3.5% on an annualized basis. The drop was largely in line with forecasts.

“Global risk aversion is helping the yen and the poor Japanese GDP [reading] cannot alter the current yen picture,” wrote strategists at UniCredit in Milan. The safe-haven yen tends to rise when investors flee risky assets.

The dollar “might thus slide to ¥79,“ they said. It would take a rally by the euro to ¥102 to prevent the shared currency from testing support at ¥100.

The euro bought ¥101.06 in recent trade, up 0.1% from Friday.

Also Monday, the British pound  fetched $1.5902 versus $1.5901, while the Australian dollar bought $1.0429, up from $1.0389 at the end of last week.

Marketwatch