Euro Drops as Yen Sees Haven Bid on Greek Rejection of Austerity

Updated on

The euro dropped to a one-week low against the dollar as Greeks voted against yielding to further austerity, raising the risk of an exit from the currency union.

The common currency pared its losses as Finance Minister Yanis Varoufakis’s resignation boosted speculation Greece will reach a deal with its creditors. Sixty-one percent of Greek voters backed the rejection of further spending cuts and tax increases in a referendum, data on the Interior Ministry website show. The yen strengthened against most of its major peers as the crisis spurred demand for haven assets.

“For the second weekend in a row, the euro and risk-appetite resilience in the face of Greece has been surprising,” Alan Ruskin, global head of Group of 10 foreign-exchange strategy in New York at Deutsche Bank AG, said in an e-mail. “The worst-case scenario, notably Grexit, has not hurt the euro much for now, while the best-case scenarios, including a negotiated settlement, are not a great reason to buy the euro either.”

The euro fell 0.5 percent to $1.1056 at 5 p.m. New York time, having declined as much as 1.3 percent to reach $1.0970, the lowest level since June 29, after the announcement of the referendum. The shared currency weakened 0.7 percent to 135.52 yen. Against the dollar, the yen rose 0.2 percent to 122.57.

Greek Exit

While Greece accounts for less than 2 percent of the euro region’s output, an exit would set a precedent for other nations that membership is reversible. Some economists, including those from JPMorgan Chase & Co., BMO Capital Markets and Barclays Plc, have made a Greek departure from Europe’s monetary union their base scenario in the wake of the vote.

Still, the euro has largely been resilient amid the ebb and flow of bailout talks, posting its best quarter since 2013 versus the dollar in the three months through June 30.

“People are just hanging back and watching for the most part,” said Greg Peters, a senior investment officer at Prudential Financial Inc.’s fixed-income unit in Newark, New Jersey. “All else being equal the euro is poised to weaken from here, particularly if you believe that the U.S. is moving regardless” to raise interest rates.

The euro’s losses may be limited as new negotiations will keep the hopes of a deal between Greece and its creditors alive, according to Valentin Marinov, head of Group-of-10 currency research at Credit Agricole SA’s corporate and investment-banking unit in London.

Containing Losses

“It may take months before we know the ultimate fate of Greece,” Marinov wrote in an e-mailed note. “Indications on Monday that Athens and its creditors will be returning to the negotiations table fairly soon could help contain the losses of risk-correlated currencies and, to an extent, the euro.”

The Greek turmoil has already shown up in currency pairs other than the euro against the dollar. Swiss National Bank President Thomas Jordan said on June 29 that the central bank intervened in markets as demand for francs soared after Greece announced plans to hold the referendum. Sweden’s central bank last week cut its main interest rate and expanded bond purchases as the turmoil in Greece raised the specter of further krona gains.

The franc rose 0.2 percent to 1.0421 per euro. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major peers, gained 0.2 percent to 1,189.87. It has climbed 5.2 percent this year.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE