Dollar up as Greece deal delayed further

NEW YORK (MarketWatch) � The euro fell for a third day against the U.S. dollar on Monday as Greece struggled against the clock to cut a deal with its international creditors for a second bailout seen as essential to averting a messy default.

The dollar index DXY , which measures the greenback�s performance against a basket of six currencies, rose to 79.064, off its high of 79.516, from 78.969 in late North American trading on Friday.

The euro EURUSD �fell to $1.3124, from $1.3147 Friday.

/quotes/zigman/1652083 DXY 82.62, +0.03, +0.03%

The leaders of Greece�s main political parties have yet to reach an agreement on further austerity measures demanded by international creditors, while European leaders have upped pressure on Athens to come to an agreement. The additional austerity measures are a pre-condition for Greece to receive its second bailout from the so-called troika � European Union, International Monetary Fund and European Central Bank. Without a deal, Greece is seen as certain to default in mid-March, when a debt repayment comes due. Read more Greek debt talks.

The euro pared its losses late morning after a Greek government minister said the country agreed to lay off 15,000 public-sector workers this year, according to Dow Jones Newswires. However, Greek Prime Minister Lucas Papademos and leading lawmakers postponed a meeting another day until Tuesday.

�Any signs that Papademos� government will fulfill any of Troika�s conditions to receive funds by March to avoid a disorderly default will pressurize the weaker euro shorts in an illiquid market,� said Dean Popplewell, chief currency strategist at Oanda Corp.

Traders remain very short, meaning heavily positioned for the shared currency to fall further, currency strategists at Morgan Stanley said, meaning However, long positions in the U.S. dollar declined for the fourth week, while the longest positions are in the Japanese yen USDJPY �and Swedish krona USDSEK .

Even �if a deal is reached, we think it will likely be the high point in terms of good news in the euro-zone debt crisis,� said Brian Dolan, chief currency strategist at Forex.com. �Markets are likely to conclude that even with a deal, Greek debt levels are still unsustainable in the long run.�

Also, an agreement over the bailout is separate from the still-unsettled negotiations Greece is having with its private bondholders to take big losses on current holdings in exchange for longer-dated bonds.

Still, the euro has been �relatively well behaved� for two reasons, said Greg Anderson and Valentin Marinov, currency strategists at Citigroup.

�Investors still expect that an agreement will be reached on both the second bailout and [private-sector deal] before the March redemptions,� they wrote in a note. �This outcome seems consistent with recent evidence which suggests that after protracted (and painful) negotiations, a resolution was always reached.�

Also, �investors think that Greece is too small to matter for the health of the euro zone even in the case of an outright default. A credit event will restore market confidence in the credit-default-swap contracts and provide an incentive for (foreign) investors to return en masse to the peripheral debt markets,� they said. �The latter should be euro positive.�

The dollar index�s gains on Monday erased its decline on Friday which followed stronger-than-expected data on U.S. nonfarm payrolls for January. See story on dollar, U.S. payrolls.

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�The fact that encouraging data releases will not alter the Federal Reserve�s dovish stance implies U.S. bond yields will remain compressed, giving no support for the U.S. dollar from higher U.S. yields for some time yet,� said strategists at Credit Agricole.

Still, a �disorderly default� by Greece could work to the benefit of the greenback, they said.

Traders remain very short the euro, currency strategists at Morgan Stanley said, meaning traders expect the shared currency to fall further. However, long positions in the U.S. dollar declined for the fourth week, while the longest positions are in the Japanese yen USDJPY �and Swedish krona USDSEK .

Japan, U.K., Australia

The dollar was little changed against the Japanese yen as traders consider whether Tokyo will intervene in currency markets.

The dollar bought �76.58, versus �76.62 late Friday.

The odds of intervention on behalf of the Japanese currency have �increased significantly as U.S. dollar/yen brushes the psychologically important 76.00 yen level. However, the feeling on the ground is that U.S. dollar/yen will need to broach 75.00 before intervention is actually seen,� the Credit Agricole strategists said.

The British pound GBPUSD �turned up slightly to buy $1.5830, from $1.5817 on Friday. The Australian dollar AUDUSD changed hands at $1.0731, down from $1.0777.

The Bank of England and the Reserve Bank of Australia are both meeting this week and expected to further ease monetary policy. Read blog about central bank meetings.