Euro slightly lower in midday London trade

The euro was modestly weaker in midday trade but showing every sign that its stint above parity against the dollar may be drawing to an end, dealers said.

Short covering in favour of the dollar saw the euro slip below parity briefly. The dip was not surprising and a prolonged stint below $1 may be at hand even though the euro has bounced back, they added.

"The 0.9960 level is key," said Divyang Shah, currency strategist at IDEAglobal.com.

A slide below this level could leave the euro struggling to find the next support level as well as a "more violent unwinding of dollar shorts," he said.

Profit taking on the euro became apparent after Moody's downgraded its ratings outlook for Germany's Allianz, he added.

But there may be room for range trading first before the dollar strengthens further, Shah said.

"The euro briefly traded below parity and the question is still whether this will form firm support or whether we are talking about much lower levels," he added.

Despite the possibility of a European Central Bank easing in December, the market remains pessimistic over the outlook for euro zone growth especially as the outlook for its largest economy, Germany looks grim.

On top of that, the wrangling over the stability and growth pact has not added to the euro's appeal a contender to take over from the dollar, Shah said.

The yen was little changed.

Ahead of the Japanese government's supplementary budget this Friday, the market is unwilling to take excessive risk especially given that the size of the budget seems to have grown. Unless Japanese policy makers are willing to engage in an active weak yen policy, the yen is seen pushing higher, he noted.

Sterling faltered following the release of the Bank of England's Monetary Policy Committee meeting minutes. It emerged that the MPC voted 7 to 2 in favour of holding its key interest rate at 4.0% at its last meeting on Nov 7.