By Anirban Nag
LONDON (Reuters) - The euro eased against the dollar and the British pound on Tuesday, as German 10-year Bund yields fell and interest rate differentials moved against the common currency.
The dip in Bund yields and the euro came after the European Central Bank left emergency liquidity for Greek banks at current levels but increased the haircuts on the collateral it demands. That kept alive fears Greek banks will soon run out of cash and that Greece's problems will spread to other Southern European countries.
Traders said the next 24 hours could be crucial. Euro-area leaders and finance ministers are meeting in Brussels to discuss Greece. Any lack of progress is likely to put more pressure on the euro.
European Commission President Jean-Claude Juncker told the European Parliament on Tuesday Greece's government must come forward with proposals to resolve its debt crisis. He also said he still opposed calls for Greece to be forced out of the euro.
Since Athens missed a debt payment to its creditors and Greek voters rejected tough conditions for further bailouts, the euro has retreated from its mid-June highs of $1.14, but there has been no panic selling. One reason is expectations the ECB will take action, including more quantitative easing, to stabilise the market.
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Against the dollar, the euro was down 0.3 percent at $1.1025, above the low of $1.0969 touched on Monday. Against the British pound, it was 0.4 percent lower at 70.80 pence, with sterling benefiting from safe-haven flows.
"It is a drift lower for the euro with things likely to get interesting if it drops below $1.0970," said Jeremy Stretch, head of currency strategy at CIBC World Markets. "The markets are reasonably relaxed at this stage because they believe the ECB will step in to take action to contain any contagion, should Greece step out of the union."
Despite the euro's resilience, Greece's future in the euro zone and its fiscal woes cloud the currency's long-term prospects.
"The ongoing uncertainty will be negative for the euro and risk appetite," Kathy Lien, managing director of FX strategy for BK Asset Management, wrote in a note. "Therefore we like selling euros on the 1.11 handle. Anywhere below that provides poor risk reward," she said.
Meanwhile, the Australian dollar shed 0.3 percent to $0.7476, after the Reserve Bank of Australia kept its cash rate steady, as expected. The Aussie remained above a six-year low of $0.7452 hit on Monday.
(Additional reporting by Lisa Twaronite; Editing by Larry King)