TOKYO: The euro slipped to a 29-month weaker against the dollar on Tuesday as the declaration of a snap election in Greece threw the country into a new round of political crisis.
The austerity-minded leading coalition in Greece failed on Monday to secure enough votes in parliament to elect a president, paving the way for an early general election next year.
The markets are now concerned that the leftwing opposition Syriza party may win the election and derail Greece’s international bailout.
After Greece nearly crashed out of the euro in 2012, when it had to accept a bailout in return for austerity measures, the country had just returned to economic growth this year and ended a four-year exile from bond markets.
The euro touched $1.2130, its lowest since August 2012.The euro’s slip against the dollar has been limited thus far — it was down only 0.2 percent on the day — as the outcome of the Greek parliamentary vote was already priced in by some.
But other participants urged caution, suggesting political turmoil in Greece was only in its early stages.
“Several weeks of opinion polling lie ahead and, as the election date approaches, we should expect the euro to become gradually more sensitive to any apparent shifts in the public mood,” Gareth Berry, a forex strategist at UBS, wrote in a note to clients. A dip below $1.20 for the euro could be a distinct possibility if the risk, however remote, of a Greek exit from the euro zone re-emerges as it did in 2012, he said.
The Greek political situation adds to the burden placed on the common currency, already weighed by prospects of the European Central Bank implementing further easing measures in 2015 to shore up the euro zone economy and ward off deflation.
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