Euro falls to four-week low as Greece deadlock spurs volatility

The euro dropped to a four-week low against the dollar as Greek finance minister Yanis Varoufakis blamed creditors’ insistence on additional austerity for the impasse over the release of financial aid.

The shared currency fell versus all except two of its 16 major peers as a spokesman for Prime Minister Alexis Tsipras said Monday disagreements with creditors remain over budget targets, sales-tax rates, pensions and labor market rules. A measure of euro price swings jumped to the highest since January. The dollar climbed to a two-month high versus the yen as Federal Reserve Vice Chairman Stanley Fischer said central bankers appeared to favor an early U.S. interest-rate increase.

“Greece is heading into the endgame, and a default remains a real possibility,” said Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. “If the euro falls, that should spill over to dollar buying.”

The euro slipped 0.4 percent to $1.0938 at 7:03 a.m. in London after falling to $1.0925, the lowest level since April 28. The common currency dropped 0.1 percent to 133.35 yen. The dollar strengthened 0.3 percent to 121.92 yen after reaching 121.95, the highest since March 10

Greece is due to repay about 300 million euros to the International Monetary Fund June 5. The failure to reach an agreement with lenders has seen liquidity evaporate, pushing the economy back into recession.

‘Greater Austerity’

“Our creditors’ insistence on greater austerity is subtle yet steadfast,” Varoufakis wrote in a Project Syndicate op-ed, published Monday. “Our government cannot –- and will not -– accept a cure that has proven itself over five long years to be worse than the disease.”

The euro has tumbled 6.9 percent in the past six months, the worst-performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 8.1 percent and the yen rose 4 percent.

“People ask how there could be an ‘accident’ where Greece defaults, and this is how: both sides believe the other side will back down,” Emma Lawson, senior currency strategist at National Australia Bank Ltd. in Sydney, wrote in a client note. There will be more weakness and volatility in the euro, she said.

One-month implied volatility for the euro-dollar currency pair climbed to 13.7 percent, the highest in four months, from as low as 10.5 percent on May 14.

A gauge of the dollar rose for a third day after Fed Deputy Chair Fischer said Monday that U.S. central bankers were weighing the risk of raising rates prematurely against having to play catch-up if they wait too long.

He reiterated the decision to increase rates for the first time since 2006 would be “data determined,” and will be a matter of “going from an ultra-expansionary monetary policy to an extremely expansionary monetary policy.”

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major peers, climbed 0.3 percent to 1,183.82. It has gained 3 percent since falling to a four-month low on May 15.


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