The euro floundered close to nine month lows against the dollar Tuesday as concerns about the problems facing Greece undermined sentiment on the common currency shared by the 16-nations in the eurozone.
The euro slipped to around $1.3600, its lowest since May last year, prompting Eurogroup chief Jean-Claude Junker to issue a warning to those who are bidding the currency lower.
Juncker said there are contingency bailout plans to shore up the currency and insisted that a relentless attack on Greece would fail. "The financial markets are completely wrong if they think they can destroy Greece," the Luxembourg prime minister said.
So far, however, his fighting talk appears to have had limited impact.
"Greece is between a rock and a hard place, and that hurts the euro. It is not only speculative flows going against the euro; it is real money too,” Neil Mellor, currency strategist at Bank of New York Mellon Corp told FRANCE24.
EU rhetoric on Greece has definitely hardened but for the wider market there has not been enough concrete progress. This has resulted on further pressure on the currency, he said.
“There is a sense of disbelief and a vacuum of positive newsflow on the issue”, Mellor added.
Greece is at the heart of the currency’s fresh bout of weakness. The country faces a gaping public deficit and is expected to undergo a period of severe belt tightening over the near future.
Eurozone finance ministers have given Greece 30 days to propose new measures to cut its deficit and have added that failure to show progress will require additional measures.
Last week, the EU said it would provide determined and coordinated action to support Greece if needed, but the euro has continued to suffer heavy selling pressure as details about just how Greece will lower levels of expenditure remain sketchy.
Mellor at Bank of New York Mellon Corp said financial markets are skeptical that Greece will be able to meet the debt cutting targets it had been set given the poor state of the country’s economy.
Public debt in Greece stands at 12.7%, well above the 3% limit imposed by EU rules. The country has pledged to reduce debt to 8.7% this year by making major reductions in public spending. The measures are likely to prove unpopular.
"Markets are closely watching how eurozone members will address Greece’s delicate fiscal position," said Andrea Appeddu, an analyst at rating agency Moody’s.
Besides Greece, worries about public debt in Portugal, Spain and Ireland are also weighing on the euro.