Euro turns up as dollar trims gains

22/04/2015 01:38 AST

The euro inched up against the dollar on Tuesday, pivoting from early losses following a European Central Bank proposal to increase the insurance it would demand in return for emergency funding to Greek banks.

ECB staff have prepared a proposal to increase the haircut on the security that Greek banks offer in return for emergency liquidity, according to a Bloomberg report, citing people with knowledge of the discussions.

The report aggravated worries that Greece was heading towards a cash crunch, which would force it to default on its debt and eventually exit the currency union.

The euro traded as low as $1.0661 before some traders reversed positions and sold dollars that were up for a second session, according to Omer Esiner, chief market strategist at Commonwealth Foreign Exchange.

"It's technical move on a slow day with no news," Esiner said.

The euro was last up 0.20 percent to $1.0758.

The dollar was up 0.25 percent against the yen at 119.48 yen. The dollar index was last off 0.1 percent after posting gains earlier attributed in part to worries among investors about Greece's financial plight.

"We are having a bit of a flight to safety relating to Greece," said Kathy Lien, managing director at BK Asset Management in New York. "Greece is weighing on the markets."

The euro took a hit on Monday after public sector entities in Greece were ordered to transfer idle reserves to the central bank to help alleviate a cash squeeze.

Athens is in negotiations with its euro zone partners and the International Monetary Fund over reforms required to unlock remaining bailout funds before it runs out of cash and loses its ability to repay debt.

Hopes are slim that Greece will be able to convince euro zone finance ministers to continue their financial support at the latest in a series of meetings on Friday.

With Greece at the forefront, political risks affecting the euro overshadowed a mixed German ZEW survey, traders said.

Mannheim-based think tank ZEW said its monthly survey of economic sentiment fell to 53.3 points from 54.8 in March, undershooting a forecast of 55.3 points. A separate gauge of current conditions, however, climbed to 70.2 points from 55.1 in March, beating forecasts for a reading of 56.0.

Reuters