Euro Holds Quarterly Gain as Fundamentals Overtake Greek Turmoil

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The euro held its first quarterly advance since 2014 amid speculation turmoil caused by Greece’s missed payment to the International Monetary Fund can be contained.

Less than three months ago, forecasters expected the common currency to end June at $1.06. Now they project it will trade at $1.07 by end of the third quarter. Greek Prime Minister Alexis Tsipras asked for aid from the European Stability Mechanism that would cover all of the country’s financial needs for the next two years. A gauge of the dollar rose for a second day after Federal Reserve Bank of St. Louis President James Bullard said the risk of contagion from the Greek crisis is low.

“The main scenario is for Greece uncertainty to drag on, but the steady, solid euro based on improved fundamentals is what’s setting the trend,” said Masashi Murata, vice president at Brown Brothers Harriman & Co. in Tokyo. “With the presence of ESM, contagion is unlikely.”

The euro traded at $1.1137 at 6:45 a.m. in London, after declining 0.8 percent to $1.1147 Tuesday. It gained 1.5 percent last month and appreciated 3.9 percent for the quarter. The single currency was little changed at 136.57 yen.

Murata said he expects the single currency to hold above $1.10.

IMF Deadline

The International Monetary Fund said Greece missed its deadline Tuesday on a $1.7 billion payment, coinciding with the expiration of the nation’s European bailout. The euro proved remarkably resilient last month in the face of a potential Greek exit from the currency bloc.

Euro reserves accumulated by global central banks dropped in the first quarter to the lowest since 2002 as the currency’s value plummeted amid bond-buying by the European Central Bank.

One-month implied volatility on the euro against the dollar was at 13.62 percent. The gauge touched 15.32 percent Monday, the highest since December 2011.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 of its major peers, rose 0.1 percent to 1,181.98. The gauge fell 1.7 percent in the three months to June, the first quarterly decline in a year and biggest since the period ended September 2013.

Bullard, who next has a vote on Federal Open Market Committee policy in 2016, said the U.S. central bank may need to raise interest rates higher than otherwise to prevent the emergence of asset-price bubbles. Some investors are betting the possibility of a Greek exit from the euro could be a reason for the Fed to put off a rate increase this year.

‘In Stasis’

“There is so much uncertainty, speculation, truth and partial truth that many markets are in stasis; waiting to see which way this goes,” Emma Lawson, senior currency strategist at National Australia Bank Ltd. in Sydney, wrote in a client note. “Markets are looking with uncertainty regarding the Fed’s ability to hike if there is volatility in the euro area.”

The dollar was little changed against the yen at 122.62, after falling below 122 on Tuesday to its lowest since May 26.

“Greece won’t be a reason to buy the yen,” said Brown Brothers Harriman’s Murata. “Rising volatility pushed the lower end of the range but the trend isn’t down. The floor is firm.”

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