The euro retreated from six-week highs against the dollar and fell to a four-month low versus the safe-haven Swiss franc on Monday as tense talks on a Greek debt swap deal dragged on, with a European Union summit unlikely to offer much succour.
The lack of a breakthrough in Greek debt talks saw yield spreads between German Bunds and euro zone peripheral debt widen, adding to downward pressure on the euro. An auction of Italian government bonds went off smoothly, but did little to calm jitters.
Athens is unlikely to reach an agreement to restructure private sector holdings of its debt in time for the summit, at which euro zone leaders are expected to sign off on a permanent rescue fund for the bloc and agree on inserting a balanced budget rule into national legislation.
Suggestions Greece should give up control of its budget policy to European institutions drew an angry reaction from Greek Finance Minister Evangelos Venizelos, which traders said weighed on sentiment.
The single currency fell 0.9% on the day to $1.3110 U.S. having hit a six-week high of $1.3233 U.S. in early trade. It gained around 2.7% last week as speculators covered short positions. Traders said demand lay near the euro's 55-day moving average at $1.3111 U.S.
A Greek debt deal which would cut the long-term value of privately held bonds by just over 70% is thought to be close, raising hopes the country at the heart of the euro-zone debt crisis can avoid a messy default. The talks had run into trouble over the coupon rate and whether the ECB and other public creditors must also take losses on their holdings.
The euro is on track for gains against the dollar this month but overall sentiment is bearish as the sovereign debt crisis rumbles on and the prospect of a euro-zone recession looms. Data last Friday showed currency speculators boosted their net euro short positions to a record high for the fifth consecutive week in the week ended Jan. 24.
The euro fell to a four-month low versus the Swiss franc of 1.2050 francs on trading platform EBS, but traders said large bids around the low were preventing a move towards the SNB's franc cap of 1.2000.
Against the yen, the euro fetched 100.55 yen, down around 0.9% on the day.
Meanwhile, the Australian dollar moved further away from three-month peaks hit in the wake of the Fed's pledge to keep interest rates low, after ratings agency Fitch put major Australian banks on a negative ratings watch.
The Aussie was down 0.9% on the day at $1.0555 U.S. with traders citing selling by leveraged players amid a pullback in risk appetite.
A drop in riskier assets like stocks helped the dollar index bounce 0.5% to 79.285, off a six-week low of 78.772 set on Friday. The dollar stood at 76.70 yen, steadying after two sessions of steep declines.
