Currency traders are more pessimistic on the euro than at any time since Greece secured a provisional funding deal with creditors three months ago.
Options to sell the euro for dollars cost 2.4 percentage points more than contracts to buy, the most since Feb. 20, three-month risk-reversal prices compiled by Bloomberg show. That suggests the optimism created by the accord that day has finally evaporated and implies further losses for the single currency after it dropped to its weakest level since April 28.
Greece is once again at loggerheads with its European partners as Finance Minister Yanis Varoufakis blames creditors’ insistence on more austerity for an impasse that threatens to tip the country into default. Greece has payments totaling almost 1.6 billion euros ($1.7 billion) due to the International Monetary Fund in June.
“The situation has deteriorated,” said Roberto Mialich, a senior foreign-exchange strategist at UniCredit SpA in Milan. “To restore more confidence in the common currency in the near term, we should have positive news from Greece so that at least the June deadline is covered. But at the moment it’s still a big question mark.”
The premium on options to sell the euro narrowed to as low as 1.5 percentage points in the aftermath of the Feb. 20 deal, which saw Greek Prime Minister Alexis Tsipras commit to policy changes in exchange for a provisional extension of the nation’s bailout. The gap was just 1.7 percentage points as recently as May 18, showing how quickly sentiment toward Europe’s most indebted nation has deteriorated.
The standoff has seen liquidity evaporate in Greece, pushing the economy back into recession. The euro has lost almost 2 percent of its value in the past three days and dropped 0.6 percent Tuesday to $1.0908 as of 10:11 a.m. London time, having touched $1.0885 earlier in the day.
Greek 10-year bonds slid, pushing the 10-year yield to as high as 11.94 percent, also the highest this month.