Euro Shrugs Off Greece as Traders Trust ECB to Contain Fallout

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The euro rose, erasing its biggest loss against the dollar in three months, on speculation any contagion from the Greek financial standoff would be contained.

The 19-nation currency touched an almost one-month low on concern Greece is moving toward an exit from the currency bloc after the Mediterranean nation effectively asked voters to decide on its membership. The shared currency weakened versus the yen as investors sought haven assets and the Swiss National Bank sold francs to limit gains versus the euro.

“This is actually an interesting day almost in terms of what’s not happening, rather than what is happening,” said Robert Sinche, a strategist at Amherst Pierpont Securities LLC in Stamford, Connecticut. “Greece just isn’t all that important and the ECB has the capability to stabilize conditions in the rest of the euro zone if they chose to do so.”

The euro added 0.4 percent to $1.1213 as of 1:28 p.m. in New York, after dropping as much as 1.9 percent to its lowest since June 2. The currency weakened 0.6 percent to 137.42 yen and the dollar fell 1.1 percent to 122.54 yen.

Implied one-month volatility for euro-dollar trading rose as much as 3.54 percentage points to 15.32 percent, before dropping back to 13.48 percent. The measure reached 18.42 percent in September 2011.

On Brink

The euro “is now trading with a bigger acknowledgment of what’s happening in Greece,” said Eimear Daly, a currency strategist at Standard Chartered Plc in London. “The markets are suffering a little bit from complacency.”

Greek Prime Minister Alexis Tsipras rejected creditors’ latest financial aid proposals on Friday, calling a referendum on them for July 5 and saying he would advocate a “no” vote.

With ATMs running out of cash and the stock market closed, Greece’s aid program expires on June 30, the same day it’s due to make a payment of $1.7 billion to the International Monetary Fund.

German Chancellor Angela Merkel and French President Francois Hollande signaled they’ve reached the limits of their ability to safeguard Greece, offering the Greek government no further concessions to step back from the brink.

“Obviously there’s downside risk for the euro,” Mark McCormick, a foreign-exchange strategist at Credit Agricole SA, said by phone. “What most people will do is just watch the polls ahead of the referendum vote on July 5 and I think that’s really going to be the key for the euro right now.”

Swiss Move

SNB President Thomas Jordan said the central bank intervened to stabilize the franc, which surged earlier in the day. The euro was 0.4 percent weaker at 1.03868 francs after sliding as much as 1.1 percent to 1.03145 francs.

Mohamed El-Erian, chief economic adviser at Allianz SE and a Bloomberg View columnist, sees an 85 percent probability that Greece will be forced to leave the euro zone in the next few weeks. Markets will be looking to the European Central Bank for measures to contain the crisis, he said in an interview from New York.

While the ECB froze the level of emergency aid available to Greek banks, its 60 billion euro-a-month quantitative-easing plan will protect the rest of the region’s markets, according to Peter Kinsella, a senior currency strategist at Commerzbank AG in London.

“The down move in the euro will not prove durable, at least insofar as Grexit is concerned,” Kinsella said. “The ECB has the tools to calm peripheral spreads.”

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