Currency traders remained less than impressed Tuesday by the 110 billion euro ($145 billion U.S.) bailout of Greece finalized over the weekend with the European Union and the International Monetary Fund, with the single currency slipping to a fresh one-year low versus the U.S. dollar.
Reaction to the deal in European bond markets remained muted. The yield premium demanded by investors to hold Greek government debt over German bunds narrowed to around 5.43 percentage points Monday from around 5.94 percentage points at the end of last week. But spreads between Portuguese bonds and German bunds narrowed only slightly.
The reaction has been a "classic case of 'buy the rumour, sell the fact,' as markets speculate that the extent of the austerity measures, while necessary, will drive Greece deeper into recession," said Michael Hewson, currency strategist at CMC Markets.
The single currency traded at $1.3118 versus the U.S. unit, down from $1.3207 U.S. in late North American trading Monday. The euro traded below the previous low at $1.3114 U.S. according to trading platform EBS.
Parliaments of Greece's euro-zone partners must approve the release of funds. That puts Germany in the spotlight, where a vote is expected on May 7, just two days ahead of crucial local elections in North Rhine Westphalia. The Greek bailout remains very unpopular in Germany.
Meanwhile, Greek civil servants began a two-day strike Tuesday to protest austerity measures. The Greek government agreed to a range of additional measures in order to secure the three-year bailout agreement. Greece separately hired Lazard to provide financial advice.
The dollar index, which tracks the performance of the greenback against a basket of six major currencies, rose to 82.702, up from 82.316 late Monday.
The British pound fell 0.3% versus the U.S. dollar to change hands at $1.5195.
A stronger-than-expected jump in the purchasing managers index for the U.K. manufacturing sector had little lasting impact, with markets focused on Thursday's general election. Surveys show the race remains the tightest in 18 years, and continue to point to the possibility of a hung parliament, in which no party wins an outright majority.
The Australian dollar tumbled 0.9% versus the U.S. dollar to change hands at 91.77 U.S. cents.
The move came after the Reserve Bank of Australia hiked its policy cash rate by a quarter of a percentage point to 4.5%.
The remarks were seen limiting scope for further rate hikes, undercutting the Aussie against major rivals.
The greenback was down slightly versus the Japanese yen, trading at 94.57 versus 94.64 late Monday
