NEW YORK—The euro gave up its gains against the dollar after an Italian budget cleared parliament without an absolute majority, which appeared to increase the possibility that beleaguered Prime Minister Silvio Berlusconi would cling to power.
In the wake of news that the budget won 308 votes, yet 321 lawmakers abstained, the euro fell below $1.38 after trading as high as $1.3845. The commmon currency had risen earlier amid speculation that Mr. Berlusconi, who analysts say has lost the confidence of markets, would be forced to resign.
Traders have nervously eyed a surge in Italian bond yields, which in recent days have flirted with 7%, their highest levels since the introduction of the euro and near levels widely considered by economists to be unsustainable. Italy's public debt currently exceeds 100% of its gross domestic product, and rising yields put upward pressure on the country's borrowing costs.
Midmorning in New York, the euro traded at $1.3793, still up slightly from $1.3777 late Monday in New York. The dollar was at ¥77.79, compared with ¥78.06, while the euro was at ¥107.30 compared with ¥107.56. Meanwhile, the pound was trading at $1.6075, compared with $1.6058.
The euro declined from its three-week high against the Swiss franc on the back of conflicting statements by members of the Swiss National Bank.
The euro fell to as low as 1.2320 francs after earlier hitting a three-week high of 1.2457 francs, following comments by SNB Vice President Thomas Jordan that the franc will weaken when conditions in the euro zone improve and the central bank will return to normal policy when circumstances allow.
His remarks were in stark contrast to those he and SNB President Philipp Hildebrand made earlier in the week that the bank was prepared to take further measures to curb the strength of the franc.
The euro recently traded at 1.2353 francs.