Negotiations over the future of Greece’s financing are rankling foreign-exchange traders, with evidence of their concern showing up in multiple currency pairs.
While the euro halted a six-day drop versus the dollar on Tuesday, it tumbled to its weakest level against the yen since June 2013. The 19-nation shared currency also fell to its lowest level versus the Swiss franc since January, dipped below 4 Polish zloty for the first time since 2011 and touched an almost five-month low against the Norwegian krone.
The common currency is depreciating amid concern Greece will fail to find an agreement on reform plans with its creditors that would unlock the next tranche of aid funds. European Union finance ministers are planning to meet on April 24 to discuss its proposed economic reforms.
“Time is running out and that’s weighing on the euro,” said Hamish Pepper, a foreign-exchange strategist at Barclays Plc in London. If an agreement isn’t reached on April 24 “it becomes quite questionable whether they will be able to finance themselves for this month, never mind any further ahead than that. The can has been kicked down the road time and time again, now you are starting to hit some hard deadlines.”
The euro weakened as much as 0.7 percent to 126.10 yen and was 0.4 percent lower at 126.47 yen at 7:11 a.m. New York time. It dropped as low as 1.02967 Swiss francs, the weakest level since Jan. 29.
With a monthly bill of about 1.5 billion euros for pensions and salaries, Greek officials last week said they are targeting the Eurogroup meeting as a deadline for approving new money.
“It’s not just that the euro is falling; faith in the currency seems to be crumbling,” Steve Barrow, head of Group of 10 strategy at Standard Bank Group Plc in London, wrote in a note to clients. Central bank reserves in euros have decreased and foreign investors in euro-area stocks are hedging their euro positions, he wrote.
Central banks cut their euro holdings by the most on record last year. The common currency now accounts for just 22 percent of worldwide reserves, down from 28 percent before the region’s debt crisis five years ago.
“If the –- increasingly likely –- Grexit starts a wave of pressure on the euro and other EMU members, who is to say that there will be a euro at all in the future?” Barrow wrote, referring to a potential Greek exit from the currency bloc.
The tension in Greece is adding to pressure on the euro after it was weighed down by the European Central Bank’s sovereign bond-buying program, which is in its second month. Meanwhile, minutes of the Federal Reserve’s most recent policy meeting showed some officials thought it would be appropriate to raise interest rates in June.
The euro is “probably the most likely currency you sell if you are in that environment of dollar strength,” Barclays’s Pepper said. “That’s where the divergence in monetary policy is greatest.”
The common currency was little changed at $1.0567 on Tuesday, down almost 13 percent this year.