Currency Volatility Climbs on Risk From Greece to Sweden

Currency volatility increased and traders sought insurance against euro losses as Greece headed for a showdown with its creditors in an emergency meeting in Brussels.

The premium to protect against the euro falling versus the greenback rose to the highest since Jan. 23. That was the day after the European Central Bank announced it would buy euro-area sovereign bonds. A measure of volatility in Sweden’s krona jumped to a 5 1/2-year high before the Riksbank policy decision Thursday.

Increasing price swings are helping to boost the allure of the U.S. currency, as investors see it as one of the more stable ones. A gauge of the dollar rose to its highest level in data going back to 2004, helped also by speculation policy makers may raise interest rates by mid-year.

“Assuming that we don’t have a compromise today, the euro will remain fairly choppy,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London, referring to the Greek debt talks. “Central banks are employing surprise as a means to get more bang for their buck. So I’m wondering if the Riksbank, who were using surprise last year, might do so again.”

JPMorgan Chase & Co.’s global gauge of currency price swings rose seven basis points to 11.31 percent as of 7:50 a.m. in New York after a 19 basis-point jump the previous day. The gauge has surged from a record-low 5.28 percent on July 4.

The dollar appreciated versus all except two of its 16 major peers. It gained 0.1 percent to $1.1311 per euro and advanced 0.3 percent to 119.73 yen. The euro climbed 0.2 percent to 135.51 yen.

Euro Losses

Traders paid more to protect against euro losses as German Finance Minister Wolfgang Schaeuble toughened his tone with Greece. There are no plans to give it more time to negotiate, and “it’s over” if the nation doesn’t want the final tranche of its existing aid program, Schaeuble told reporters in Istanbul after a Group-of-20 meeting.

Greek Prime Minister Alexis Tsipras told parliament there is “no way back” for his government, which later won a confidence vote. The meeting is set to start at 5:30 p.m. in Brussels.

The premium to protect against declines in the euro versus the dollar over gains increased to as much as 1.78 percentage points, the most since Jan. 23, according to one-month risk reversals compiled by Bloomberg.

Swedish Surprise

In Sweden, the majority of analysts surveyed by Bloomberg see the central bank stopping short of lowering its benchmark rate below zero on Thursday. That’s so, even as the central bank in neighboring Denmark has cut rates four times this year to minus 0.75 percent.

The central bank will keep the repo rate unchanged at zero, according to 12 of 18 analysts in a Bloomberg survey. Six, including five banks from outside Sweden, anticipate a reduction to a level of 0.1 percent to minus 0.25 percent.

The Riksbank has a history of taking more dramatic steps than markets anticipated. In both July and October last year policy makers cut the repo rate more than economists polled by Bloomberg forecast.

Sweden’s currency declined 0.3 percent to 9.4593 per euro and dropped 0.5 percent to 8.3688 against the dollar.

One-week implied volatility on the krona versus the euro climbed to as high as 16.76 percent, the most since June 2009 on a closing-price basis. The krona is expected to be the most volatile during the next seven days against the dollar of 16 developed currencies, according to data compiled by Bloomberg.

Euro Performance

The euro has tumbled 3.9 percent this year, the worst performer after the Canadian dollar and Swedish krona among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 3.6 percent, while the Canadian loonie tumbled 5.5 percent.

“Raising rates in June looks like the attractive option for me,” Richmond Federal Reserve President Jeffrey Lacker told reporters on Tuesday after a speech in Raleigh, North Carolina. The Fed is getting “closer and closer” to boosting borrowing costs after faster-than-expected wage increases, San Francisco Fed President John Williams said in interview with the Financial Times.

Futures contracts indicate there’s a 25 percent chance the Fed will boost its benchmark to at least 0.5 percent by its June meeting, data compiled by Bloomberg show. Policy makers have kept the target in a range of zero to 0.25 percent since December 2008.

“The comments are consistent with our view that the Fed will soon signal more clearly that it will begin to raise from the middle of this year,” Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in an e-mailed note. “Building investor expectations of monetary tightening from the Fed is likely to result in another leg higher for the U.S. dollar in the coming months.”

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