Greek political uncertainty weighs on euro

The euro dropped close to its recent three-month low today, due to concerns that Greece’s political uncertainty and France’s presidential change could undermine austerity plans crucial to tackling the debt crisis in the eurozone, reports Reuters.

The single currency remained pressurised after the Greek Left Coalition party’s leader said yesterday that the Mediterranean country’s commitment to an International Monetary Fund/European Union rescue deal was now “null and void”. The two main pro-bailout parties in Greece were unable to win a majority vote during weekend elections, leaving question marks regarding whether Greece will avert bankruptcy and remain in the euro.

Wednesday’s moves indicate that the political uncertainty across the region is leading to a wider retreat from riskier assets. The Australian and New Zealand dollars, both sensitive to movements in investor risk appetite, fell to four-month lows against the greenback.

The euro dropped by 0.3 per cent to $1.2971, near the three-month low of $1.2955 hit on Monday. Market analysts say the single currency could spiral towards $1.28-$1.29 during the coming weeks, although the fall is likely to be gradual.

One option trader said that the euro could receive some support due to potential demand for the currency from FX options players, in relation to option barriers at or below $1.2950. The existence of barriers such as these means options traders could step in to purchase the euro should the currency fall close to those levels.