The euro fell on Tuesday as traders looked beyond an endless stream of headlines indicating progress in Greek debt talks, while the dollar gained traction from solid US housing data.

In Asia, a survey on Chinese manufacturing showed that factory activity may be stabilising but not stopped contracting, undermining commodity currencies.

The common currency dropped 0.6 per cent in Asia to trade at $1.1268, falling more than a full cent from Monday’s high of $1.14105.

Greece optimism

Despite more optimism on Greece in global equity markets and elsewhere, a cautious mood prevailed in the currency market as a deal remains elusive and as the euro zone’s economic outlook pales in comparison to others.

“Frankly, we just don’t know what will happen next so we need to see how things will unfold. The euro’s levels are still high and people are scared of its downside in case the talks break down,’’ said Kyosuke Suzuki, managing director of forex at Societe Generale in Tokyo.

New reform proposals

Euro zone ministers had on Monday welcomed the new reform proposals from Greece as a possible basis for an agreement to avert a looming default ahead of its payment to the International Monetary Fund at the end of the month.

Yet, both German Chancellor Angela Merkel and the IMF managing director, Christine Lagarde, said there was still a lot of work to be done.

Traders expect more twists and turns in coming days as creditors pore over the proposals from Athens before planned meetings, one by finance ministers on Wednesday and the other national leaders on Thursday.

“We wait, there is a vast amount of commentary and expectation, and even a fair degree of optimism. And nothing might happen for a few days at least,’’ said Emma Lawson, senior currency strategist at National Australia Bank.

US housing data, Treasury yields

The euro’s drop also partly reflected resurgence in the dollar, which was aided by upbeat housing data and a jump in Treasury yields.

US home resales surged to a 5-1/2-year high in May as first-time buyers stepped into the market, helping to rekindle expectations that the US Federal Reserve could raise interest rates as early as September.

The dollar index climbed 0.5 per cent to 94.753, from Monday’s trough of 93.807.

Versus the yen, the greenback added 0.2 per cent to fetch 123.65, extending Monday’s 0.5 per cent gain.

China manufacturing PMI

The dollar also pushed higher against commodity currencies, which did not get much help from a Chinese manufacturing survey.

The HSBC/Markit Flash China Manufacturing Purchasing Managers’ Index (PMI) edged up to 49.6, a three-month high, from 49.2, but remained below the 50 mark which separates contraction from expansion.

The Australian dollar dropped 0.3 per cent to $0.7704.

The New Zealand dollar slid to a five-year low of $0.6845 , having been on the skids since the Reserve Bank of New Zealand surprised some by cutting interest rates earlier in the month and keeping the door open to more easing.

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