The euro fluctuated against the dollar Thursday on renewed jitters about the future of European officials' plan to rescue the region from its escalating debt crisis.
The common currency was largely a hostage to headlines, moving in tandem with any positive or negative reports about the upcoming Oct. 23 summit of European Union leaders. It got some relief after German Chancellor Angela Merkel and French President Nicholas Sarkozy said the region's leaders will agree on a comprehensive plan by Wednesday, though investors had originally expected that a package to recapitalize the regions banks and detailing how to deploy bailout funds would emerge at Sunday's meeting. It also got a boost after Greece's parliament approved new austerity measures, and edged into positive territory against the dollar in late trading.
But ongoing doubts that the region's leaders can agree on a plan has most investors keeping their distance from the euro, analysts said.
"Since when have European policymakers have been unified enough to come up with a magical solution?" said Paresh Upadhyaya, director of G10 FX Strategy at Bank of America Merrill Lynch in New York. "There's still enough potential risk events out there that I think real money investors in particularly are very bearish on the euro."
Short-term investors were largely reversing any previously placed bets that the euro would appreciate, analysts said. France and Germany, the two biggest countries in the euro zone, have been trying to figure out a plan for deploying the European Financial Stability Facility, the region's bailout fund. France would like to see the facility as a bank, but German officials have balked at such a move. It appears Germany favors more of an insurance style program from the EFSF.
Even if officials can determine how to deploy the EFSF funds, they must also determine how to restructure Greek debt, which will also likely require a recapitalization of some of Europe's biggest banks.
Meanwhile, fears of contagion risks continue to plague the common currency bloc, with Italian 10-year bond yields hitting two-month highs Thursday. The euro will likely continue to see volatile trading as investors await an effective solution from the region's leaders.
Late Thursday, the euro was at $1.3780 from $1.3759 late Wednesday, according to EBS via CQG. The euro did, however, tumble against the classic safe-haven Swiss franc, falling to CHF1.2320. Meanwhile, the dollar jumped higher against growth-sensitive currencies like the Mexican peso and South African, with traders keeping their distance from riskier currencies.
But the U.S. currency failed to make any headway against its safe-haven rivals the Swiss franc and Japanese yen. The dollar was at Y76.81, unchanged from late Wednesday, while the euro was at Y105.81 from Y105.70.
The U.K. pound was at $1.5796 from $1.5770. The dollar was at CHF0.8942 from CHF0.9026. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at about 76.936 from about 77.114.