Dollar supported after Greek vote casts doubt over euro

31/12/2014 07:49 AST

The dollar hovered near a 29-month high against the euro on Tuesday after a Greek vote triggered the dissolution of the country's parliament and anxiety about potential trouble ahead for financial markets.

The austerity-minded leading coalition in Greece failed 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 nearly crashing out of the euro in 2012, Greece had just returned to economic growth this year under austerity measures and ended a four-year exile from bond markets.

The euro stood little changed at $1.2159 after touching $1.2143 overnight, its lowest since August 2012.

The euro's slip against the dollar was limited 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 risk, however remote, of a Greek exit from the euro zone re-emerges as it did in 2012, he said. The dollar, supported by its strength against the euro, was also better bid against the yen.

The dollar fetched 120.64 yen after gaining 0.3 percent overnight.

The currency market will look to indicators due later in the day such as American consumer confidence data and the CaseShiller housing index that may further highlight the continuing strength of the US economy relative to the euro zone and Japan.

Divergence between the Federal Reserve's path toward rate hikes and stimulative policies in Europe, Japan, and Switzerland have helped the dollar gain nearly 13 percent this year against a basket of major currencies.

The Australian dollar edged up 0.1 percent to $0.8140.

If it stays up against the US dollar, Tuesday will be a fifth straight day of gains.

The Aussie has shed nearly 9 percent so far in 2014, weighed down by falling global commodity prices and sluggish domestic economic growth.

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