The European currency surged back after weakening against the dollar earlier amid political worries over Greece, Italy and Britain as European geopolitical fears weakened risk appetite.
EUR/USD was up 0.20% to $1.1186 by 10:29 ET, after falling as low as 1.1108.
The single currency came under pressure in early trade as worries over Greece’s bailout, the prospect of an early Italian general election and European Central Bank President Mario Draghi’s comments about the need for continued stimulus all weighed.
James Woods, a global investment analyst in Sydney, attributed most of the currency’s decline on Tuesday, saying Athens may opt out of its next bailout payment if creditors cannot get a debt relief deal done.
“The bailout payments are necessary to meet existing debt repayments due in July, so if Greece were to forgo this bailout payment the probability of a default would spike, reopening the discussion around a Grexit from the Euro zone,” Woods said.
However, he warned against reading “too much into it” without more details or confirmation, adding it was doubtful Greece would forgo the bailout payment at this stage.
Euro zone finance ministers failed to agree with the International Monetary Fund on Greek debt relief or to release new loans to Athens last week, but did come close enough to intend to do both at their June meeting.
Comments by former Italian Prime Minister Matteo Renzi on Sunday in favor of holding an election at the same time as Germany’s in September also raised uncertainty and pulled the euro lower earlier.
So did a statement by European Central Bank President Mario Draghi reiterating the need for “substantial” stimulus given subdued inflation.
Meanwhile, sterling pushed higher, rising 0.3% to $1.2877, despite British Prime Minister Theresa May’s lead over the opposition Labor Party dropped to as low as 5-6 percentage points in the latest poll to show a tightening race since the Manchester bombing and a U-turn over social care plans, which adds to political risk around Brexit as well.
Recent polls have indicated that Prime Minister Theresa May’s Conservative Party has less of a lead over the Labor Party than expected.
The pound was also higher against the euro, with EUR/GBP down 0.09% at 0.8703.
Moreover, the greenback index was at 97.23, off the day’s highs of 97.67 as the firmer euro weighed up.
Last week the index plumbed lows of 96.79, its weakest level since November 9 amid uncertainties over the Trump administration.
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