The euro held firm against the dollar and yen in Asian trade on Thursday after dropping overnight amid concerns about political upheaval in debt-hit Greece and strains on Spain's banking sector.
The euro bought $1.2948 and 103.28 yen in Tokyo morning trade, stronger than $1.2944 and 102.98 yen in New York late Wednesday. The dollar strengthened against the Japanese currency, changing hands at 79.74 yen against 79.69 yen.
Despite a breather in the euro's fall, a senior dealer at a major European bank in Tokyo said the common currency still had room to weaken given the continent's ongoing fiscal saga, and political uncertainty after French and Greek elections underscored a wave of anti-austerity sentiment.
"Given the problem hasn't fundamentally been solved, chances are still higher for the pair (euro-dollar) to fall further," he told Dow Jones Newswires.
Investors were wary after Madrid announced Wednesday it would take control of Bankia, the country's fourth-biggest listed bank, to shore up its balance sheet which is ridden with bad loans.
Also Wednesday, Greek political parties failed to form a viable coalition government amid warnings from creditors that a loan to be paid on Thursday could be the last if Athens fails to honour its reform commitments.
In Brussels, a European Union official told that Greece would receive a 4.2-billion-euro loan as expected on Thursday, but a further 1.0 billion would be held back until Monday.
The dollar may trade around the 80-yen level in the near term as investors focus on Federal Reserve chairman Ben Bernanke's speech due later Thursday, said Masafumi Yamamoto, chief FX strategist at Barclays Bank in Tokyo.