The euro slumped to a three-month low as analysts warned any gains may prove fleeting amid diverging monetary policies between the Federal Reserve and other central banks.
Europe’s single currency was still stronger versus most of its 16 major peers after Greece confirmed it would make payments due to the European Central Bank and International Monetary Fund. Greek banks reopened Monday, three weeks after they were shuttered to prevent economic collapse.
“The themes all remain very euro-bearish,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. With the Greece crisis fading, “not only does it reinvigorate the divergence trend, it’s also reinvigorated expectations for the Fed to raise rates this year, and that is really still not entirely priced into the market.”
The euro was little changed at $1.0825 as of 5 p.m. in New York, after sliding to $1.0809, the lowest level since April 24. It gained 0.1 percent to 134.52 yen, while the dollar advanced 0.2 percent to 124.27 yen.
Europe’s shared currency swung between gains and losses as Greece gave the order to repay 6.8 billion euros ($7.4 billion) to creditors after last week’s tentative bailout deal, according to a Finance Ministry official, who asked not to be identified in line with government policy.
Gains were “driven by the relief that Greece is indeed able to pay the ECB today,” said Esther Reichelt, a currency strategist at Commerzbank AG in Frankfurt.
With uncertainty regarding Greece’s future in the euro area abating, however, investors are increasingly refocusing on the probability of the Fed raising interest rates this year while the ECB continues to add currency-depreciating stimulus.
Hedge funds and other large speculators have boosted bets on a weaker euro to the most in a month, while increasing wagers the dollar will advance, futures data show. Implied volatility in the euro-dollar rate rose for the first time in eight days.
Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London, said gains in equity markets will be another factor holding the euro down. When investors have been less risk-averse and bought stocks, the currency has weakened as they hedged foreign-exchange risk, he said.
The Stoxx Europe 600 index gained 0.3 percent on Monday, extending last week’s 4.3 percent jump.
“In an environment where global risk seems to be improving, equity markets moving higher, that will put euro under pressure,” Stannard said. “Any rebound in the euro should be fairly limited and provide renewed selling opportunities.”