The euro slipped on Monday, hovering within sight of an eight-month low against the dollar and a decade low versus the yen, as mounting concerns of a Greek default deepened investor worries about the health of the euro zone's banking sector.
With Europe still deeply divided over how to tackle the spiraling debt crisis and the risks that poses for the bigger euro zone economies and the financial sector, the euro is likely to stay under pressure, market players said.
The euro was down 0.2 percent at $1.3357, having fallen to a low of $1.3313 -- its lowest since mid-January. The shared currency lost 7 percent in September -- its largest monthly drop since November 2010. Traders cited talk of option barriers at $1.3300, $1.3275 and $1.3250.
Against the safe-haven yen, the euro was down 0.4 percent at 102.73 yen, not far from its decade low of 101.95 struck on trading platform EBS late last month.
Concerns about cooling global growth prompted both leveraged and macro funds to unwind positions funded in the dollar and the yen. As a result, the risk-sensitive Australian dollar hit a 10-month low at $0.9592.
The euro is under pressure because there are too many unknowns out there. No one knows what is happening in Greece in light of revised budget expectations and finance ministers are meeting today but we may have to wait for any concrete news, said Tom Levinson, FX strategist at ING.
Negative stories about the euro zone banking sector feed further into the risk aversion story.
European shares fell, with banking stocks under fresh pressure. Moody's put the rating of financial services group Dexia on review for possible downgrade with the bank looking stretched by its exposure to Greece, raising pressure on its state shareholders to consider a second bailout.
French daily Les Echos reported Belgian and French finance ministers will meet on Monday to discuss ways to shore up the balance sheet of Dexia, reminding investors of the problems euro zone banks face due to their exposure to peripheral debt.
Euro zone finance ministers are meeting on Monday and are expected to put pressure on Greece to implement agreed structural reforms and discuss options for leveraging the European Financial Stability Facility (EFSF).
That meeting comes after Greece said it would miss a deficit target set just months ago.
With the debt crisis showing little sign of abating, the euro zone's manufacturing contraction deepened in September as new orders shrank at their fastest pace since June 2009.
U.S. ISM manufacturing data expected later in session is likely to add to economic growth concerns by highlighting a gloomy outlook for the world's largest economy.
ING's Levinson said a poor ISM number would be positive for the dollar in the current risk-off environment and potentially push the euro below $1.33.
Investors are also awaiting an European Central Bank rate decision on Thursday. Some market players are expecting it to cut rates by 25 basis points and announce fresh liquidity measures to support the banking sector.
EURO SHORT POSITIONS
Speculators have been adding to their bearish bets against the euro and this trend is likely to continue. rise to an eight month high of 79.154. It was last up 0.4 percent at 78.857. Currency speculators increased bets on the U.S. dollar to their highest since June 2010.
The greenback eased against the yen to 76.85 yen, having hit a two-week high at 77.27 yen and breaking above its 55-day moving average at 77.17 for the first time since its spike after intervention on August 4. Stop losses loom around 77.30 yen, while orders are seen around 77.50, traders said.
Tokyo dealers also reported macro funds building dollar long positions and analysts said that if the current crisis deepened, this time the yen could weaken versus the dollar, unlike the global financial crisis in 2008.