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Foreign Exchange

Euro declines after EU delays Greek aid decision

The euro fell, prompting a sell-off in riskier currencies, after euro-area finance ministers delayed a decision on providing money to Greece due as part of a bailout package agreed in May.

The euro traded at around $1.4207 in London early on Monday, compared with $1.4306 previously. Asian stocks declined and the Australian dollar dropped more than a cent to $1.0520. Investors shifted into the safe haven of the yen, which traded at 113.82 against the euro, some 70 points lower.

Greek prime minister George Papandreou, already facing a confidence motion this week, came under pressure from European politicians to accelerate his programme of austerity cuts, aimed at reducing the country’s €340 billion of debt.

“To move to the payment of the next tranche, we need to be sure that the Greek parliament will approve the confidence vote and support the programme, so the decision will be taken at the start of July,” said Belgian finance minister Didier Reynders.

Euro-area finance ministers will decide on a new financing strategy for Greece by early next month, the group said in a statement distributed to reporters in Luxembourg after talks. Progress on the bailout has been delayed after a disagreement between the European Central Bank and German politicians over burden-sharing for private investors in Greek bonds.

“As long as this atmosphere of uncertainty continues, it’s going to be bearish for the euro and for risk,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. “We are back in a nervous environment.”

Shares in Asia fell, with China’s Shanghai Composite Index declining 0.9% to near its lowest closing level in almost nine months, while oil and copper also dropped.

Investors will this week focus on a meeting of US policy-makers, which may give further clues on the outlook for US rates and the Federal Reserve’s liquidity provision, after data showed a sluggish recovery in the world’s largest economy.

The Fed’s programme to buy government bonds, known as QE2 (quantitative easing), is slated to end on June 30. However, the central bank is likely to reiterate its intention to keep the size of its balance sheet constant, analysts say, by reinvesting the proceeds of maturing mortgage-backed securities and Treasury notes.

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