(Reuters) - Concerns the euro zone debt crisis will damage global growth pushed the euro back towards 11-month lows on Monday while the safe-haven dollar got support from uncertainty after the death of North Korean leader Kim Jong-il.
The euro was also under pressure after Fitch's warning late Friday that it could downgrade France and six other euro zone countries as it believes that a comprehensive solution to the region's debt crisis is technically and politically beyond reach.
In addition, Moody's cut Belgium by two notches to Aa3 from Aa1 on Friday, citing risks to economic growth and the costs of bailouts of banks such as Dexia (DEXI.BR).
The euro was down about 0.1 percent at $1.3021 versus the dollar after falling to an 11-month low last week of $1.2945 on trading platform EBS. The dollar index .DXY was flat for the day at 80.237, paring gains made in the Asian session
The greenback earlier got knee-jerk support after North Korean state television reported the death of Kim Jong-il [ID:nL3E7NJ1RQ], although analysts said the impact of the news was fading.
The death of Kim Jong-il was a focus in the Asian session but for now the euro remains very sticky around $1.30. The market is very tired approaching year-end...come the New Year the risk to the euro will be back to the downside, said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank.
The euro remains highly vulnerable to more EU ratings downgrades after EU leaders failed to come up with a convincing solution to the debt crisis at a summit earlier this month.
Traders said a break of last week's low would open up a possible test of the 2011 trough around $1.2860, although Childe-Freeman said a lot of bad news was already reflected in the price of the single currency.
A downgrade of other countries has been already priced in so the negative impact may not be as much as expected, although it would weigh on the currency, she said.
The common currency was also under pressure against the Swiss franc, down 0.2 percent at 1.2183 francs after breaking below support at the 200-day moving average around 1.2191. The Swiss National Bank left its cap on the franc unchanged at 1.20 francs last week.
The dollar was flat against the franc but gained 0.2 percent against the yen to 77.90 yen, while the Australian dollar was down 0.2 percent at $0.9948.
Investors will focus on a euro zone finance ministers' teleconference call from 1430 GMT about the draft text of a new fiscal compact agreed earlier this month. The talks will also include the size of individual bilateral loans to the International Monetary Fund.
Short-covering could provide a lifeline for the euro. IMM data released on Friday showed net short positions in the euro against the dollar rose sharply as of December 13.
But with EU leaders still searching for a credible long-term solution to bolster the euro, rallies are expected to provide selling opportunities.
Euro/dollar resistance lies at $1.3090, which would be a 50 percent retracement of its recent move from $1.3236 to $1.2945.
I can't see any euro rallies lasting for long, said Gavin Friend, currency strategist at NAB Capital.
The market can to some extent deal with a lower growth profile but what it cannot manage is the ongoing policy paralysis in the euro zone, he added.
Any sign of improving credit conditions in the euro zone could provide some support for the single currency.
The European Central Bank is preparing this week to prop up euro zone lenders with three-year low-price loans to revive the struggling interbank lending and funding market.
Banks could take an estimated 250 billion euros ($326 billion) at the first auction of the three-year loans on Wednesday. Some hope the banks will use the funds to buy EU sovereign debt and pull yields down.