Political uncertainty in Greece sapped risk appetite and the euro slipped to the weakest level in two years versus the dollar during the Asian session on Tuesday. Speculation Greek elections next month may endanger the country’s bailout agreement with the troika led investors to sell off the single currency.
The euro made a fresh 27-month low at 1.2123 by late Asian session trading before bouncing as the European session started. It then rose to 1.2170.
The euro remains vulnerable ahead of the Greek national election scheduled for January 25. Prime Minister Antonis Samaras failed to get enough support in parliament on Monday for his presidential nominee Stavros Dimas. It is feared that the opposition party, Syriza, would gain more in the polls and come to power. The party is against austerity measures and could derail negotiations for Greece’s bailout package that has helped keep the country afloat.
The political uncertainty could increase market volatility primarily in the bond and equity markets of Greece and the peripheral Eurozone economies of Italy, Portugal and Spain, which could also spill over to the euro. On Monday, in reaction to the news of snap elections, the Greek 10-year benchmark yield rose toward 10% to its highest since September 2013, while the safe haven German bund yield fell to new record lows of 0.563%.