The euro was under pressure on Tuesday, slipping against the yen and holding near its latest record low against the safe-haven Swiss franc as funding concerns in the euro zone made investors nervous.
The euro slid to a three-week low on the yen EURJPY=R, which gained broadly, and inched lower on the dollar after losing 0.8 percent on Monday, with small stop-loss sell orders expected just below current price action, in the $1.2260/30 area EUR=.
The Swiss franc has strengthened steeply on the euro and the dollar over the past month, and the single European currency hit its lowest ever level on Monday at 1.3329 francs EURCHF=R after barriers and stop loss sell orders at 1.3400 were taken out.
The euro has lost 4 percent since mid-June when the Swiss central bank backed off a pledge to fight excessive franc appreciation, shedding about 10 percent this year, and a dealer at a Swiss bank said on Tuesday there was no sign of the central bank so far.
Instead funding pressures in the euro zone on concerns ahead of bank repayments to the European Central Bank this week as well as debt auctions were keeping investors wary.
Renewed debt stress stories...have weighed a bit on the euro and led to renewed safe-haven parking in the yen and Swiss franc, the dealer said.
Investors' sentiment towards peripheral Europe remains cautious and fragile to say the least.
The euro softened 0.1 percent to 1.3336 francs, after dropping 1.5 percent on Monday, while the dollar eased to 1.0875 francs CHF=, above Monday's two-month low of 1.0817.
For the dollar/swiss, the decline continues to develop in an impulsive manner, with the focus on the 1.0795 trendline support from the November 2009 low, as the euro/swiss maintains the one-way decline with little evidence of a reversal, JP Morgan said in a report.
The yen lurched higher in the Asian session with some talk of Japanese exporters repatriating earnings, selling euros and dollars for yen. Selling was also seen on the Australian dollar, which fell 0.8 percent on the day to 77.27 yen AUDJPY=R.
The euro dropped 0.5 percent to its weakest in three weeks at 109.16 yen EURJPY=R, while the dollar hit a six-week low at 89.02 yen JPY=.
Another trader at UK bank said not all yen strength was 'safehaven' driven. A drop in U.S. Treasury yields, which makes U.S. debt less attractive to Japanese investors, had also been weighing a bit on dollar/yen.
The euro was also hovering near this week's 1-½ year low on sterling at 81.215 pence EURGBP=D4, as funding pressures in the euro zone re-emerged with interbank lending rates there hitting their highest in almost seven months on Monday.
Banks must repay 442 billion euros ($545.5 billion) to the ECB on Thursday, leaving a potential liquidity shortfall in the financial system of over 100 billion euros.
Financial markets will closely watch debt auctions by France and Spain later this week after tepid demand for Italy's sale of 7 billion euros of government bonds on Monday kept worries about euro zone debt troubles alive.
The premium investors demand to hold 10-year Italian, French and Spanish government bonds, rather than euro zone benchmark German Bunds, all widened.
The pound GBP=D4 held firm against the dollar after hitting its highest in nearly two months at $1.5130 GBP=D4 on Monday, when Bank of England policymaker Andrew Sentance told Reuters drastic tax hikes and spending cuts in Britain would not delay the start of a tightening cycle.
The dollar index .DXY, which tracks the performance of the greenback versus a basket of six other major currencies, was 0.06 percent higher at 85.702, holding above last week's low around 85.09, which was seen as near-term support. (Additional reporting by Anirban Nag in Sydney and Reuters FX analyst Krishna Kumar; Editing by Edwina Gibbs)