By Takashi Mochizuki
TOKYO (MarketWatch) -- The euro fell to a fresh 14-month low against the dollar in Asia Thursday as riots in Greece fueled investor concern that the nation can't implement fiscal reform steps smoothly and may face higher default risk.
Three people were killed during demonstrations in Athens Wednesday in protest against the government's spending-cut and tax-hike plans to avert national bankruptcy. Over the weekend, the government agreed to an EUR110 billion ($141 billion) European Union and IMF debt bailout.
The development prompted investors to speculate the nation may not be able to promptly take necessary steps to avoid default, which in turn will increase worries that other debt-suffering European nations such as Portugal may experience similar fates.
"We just can't be fools to buy the euro now. We are seeing a sinking ship with its crew members beating each other on the deck," said Jun Kato, a senior manager of investment at Shinkin Asset Management.
During Asian trading, non-Japanese Asian hedge funds and some Japanese institutional investors sold the euro. The single currency fell to $1.2789, its lowest point since March 12, 2009.
As of 0450 GMT, the European unit bounced back a bit to $1.2820 as the hedge funds adjusted their currency portfolios, dealers said. It was $1.2816 in New York Wednesday.
Looking ahead, the euro should resume falling, and it may fall to the next significant psychological level of $1.260 in a few days, Kato said.
Against the yen, the euro was higher at Y120.47 from Y120.12 in New York overnight as some Japanese importers bought the unit to settle their accounts after Japan's Golden Week holidays ended Wednesday.
But the euro is likely to resume falling against the yen as well due to the Greece concerns, and any declines will likely be sharp, dealers said.
That is because many Japanese exporters and institutional investors place their exchange rate break-even point at Y120, meaning they may rush to sell the euro anytime to secure profitability of assets in Europe.
"The current level of euro/yen is problematic because most exporters set the euro at Y120 or higher for their business this year," said Tohru Sasaki, a senior strategist at JPMorgan Chase Bank.
Shinkin's Kato said the euro may fall to Y117 in a week.
For now, investors will pay attention to developments in Greece and credit rating firms' moves after Moody's Investors Service Inc. said Wednesday it might cut Portugal's credit rating from Aa2.
The European Central Bank will hold a Governing Council meeting later in the day, and investors will pay attention to President Jean-Claude Trichet's press conference after the gathering for any comments about Greece, they said.
The dollar, meanwhile, was higher at Y93.93 from Y93.66 in New York overnight due to buying by Japanese importers.
But dealers said the greenback may fall against the yen anytime as investors' demand for the safe-haven yen is increasing due to falling share prices and intensifying Greece problems.
If the dollar falls below Y93.50, it may extend its losses to Y91.50 or lower, said Osamu Takashima, chief strategist Japan at Citibank.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 84.131 from 84.102.