The euro tumbled in Asian trading on Monday after Greece failed to strike a deal with its lenders, taking it a step closer to a debt default that could force its exit from the euro zone.
The Swiss and Japanese currencies, both of which often appreciate during times of uncertainty on their perceived safe-haven status, were broadly higher.
One-month low
The euro fell to a one-month low of $1.0955 on the EBS trading platform, about 2 U.S. cents from levels around $1.1165 late on Friday. It was last at $1.1018, down 1.3 percent on the day.
“Ahead of the weekend, there seemed to be a market consensus that something would get done for Greece, so it was a rare occasion when the market takes position for the optimistic view,” said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.
Default more likely
But the likelihood of a Greek default on a 1.6 billion-euro payment to the International Monetary Fund by a Tuesday deadline appeared greater after Athens effectively rejected proposals made by its European lenders in exchange for more credit at last-minute bailout talks at the weekend.
Greek Prime Minister Alexis Tsipras shocked European officials by instead calling for a referendum to be held on July 5 to ask Greek voters to decide on whether to accept the bailout terms which his government opposes. Athens also closed banks and imposed capital controls to prevent a collapse of its banks as anxious investors pulled out their cash.
No panic selling
Given relatively low liquidity as investors cut their euro positions, Mr. Wakabayashi said the single currency’s drop so far did not suggest any panic selling in the foreign exchange market.
“It’s been surprisingly orderly, as the reaction was expected because of the headlines over the weekend. It could have been much uglier,” he said.
Paring bets on euro
Some investors had begun paring bets on the euro even before the situation reached its latest crisis point, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday. Net short positions in the euro increased to 99,306 contracts in the week ended June 23 from the previous week’s 89,357 contracts, which was the smallest level of net euro short positions since late July.
Against the Swiss franc, the euro fell as low as 1.0260 francs according to Reuters data, its weakest level since late April, while it plumbed a one-month low around 133.75 yen. The euro was last buying 1.0332 francs, down about 0.7 percent, and 135.60 yen, down about 0.5 percent.
The dollar fell to a one-month low of 122.10 yen before pulling away from a test of the 122 level. It last stood at 123.08 yen, off 0.6 percent.
A Greek default could set it on a path out of the euro zone, which many investors fear could fatally weaken the entire currency bloc.
Uncertainties
Analysts said that in addition to increasing uncertainties about Greece’s future in the euro zone, the vote would raise political risks for Mr. Tsipras’s government if the public voted in favour of accepting the bailout proposals.
'Indirect impact on India'
The financial crisis in Greece may have an indirect impact on India and the government is in touch with the Indian central bank to deal with the situation, Finance Secretary Rajiv Mehrishi said in New Delhi on Monday.
Indian shares fell nearly 2 percent on Monday and bond yields rose as Greece looked set to default on its debt repayment this week, sparking concerns about foreign selling in emerging markets.
