“The Greek government’s willingness to walk into the fire is a risky proposition for Europe and the global markets”, Kathy Lien, managing director of FX strategy for BK Asset Management in New York, said in a note to clients.
“Headline risk remains quite acute, with the focus squarely on Greece,” she said. Against the yen, it tumbled to a one-month low of Y133.76 before recovering to Y135.02 at 0450 GMT.
In commodities trading, USA crude oil futures extended their fall after skidding more than 2 percent on Monday to three-week lows.
China’s central bank cut interest rates by 25 basis points, its fourth rate cut since last November, in a bid to stabilize the stock market and boost investor confidence in the economy. But it came off those highs as the Swiss National Bank said it intervened in the market to weaken it, and was last trading up 0.6 per cent at 1.0367 francs.
The euro sank against its major rivals in Asia on Monday as a Greek debt payment deadline looms after Athens and its lenders failed to reach an agreement over the weekend.
“The images of queues at ATMs in Greece are stripping traders of what tiny confidence they have left in the nation, and the financial natural disaster that happened in the eurozone over the weekend can be felt around the world”, said David Madden, market analyst at IG.
Some investors, however, are pinning their hopes on the possibility that Greek voters will back the creditors’ bailout terms in next weekend’s referendum, returning Athens to the negotiating table, despite Tsipras urging a no vote.
Greece will remain the focus of attention throughout the day as the country is due to repay on Tuesday 1.6 billion euros to the worldwide Monetary Fund. Tuesday is also an important day as it marks the end of the country’s bailout program.
Given relatively low liquidity as investors cut their euro positions, Wakabayashi said the single currency’s drop so far didn’t suggest any panic selling in the foreign exchange market. It’s important to remember that while the situation in Greece is unusual, many expected that capital controls would be inevitable and I am surprised that they were not installed earlier. He says: “That’s when the geopolitics become very ugly”.
Yet perceptions could change if investors grow more anxious about the future of the currency union, including whether Greece can stay within the euro zone after default.
Greek withdrawal from the euro could lower Asian economic growth by 0.3 percentage points next year due to disruption in trade and financial markets, Biswas said. The Federal Reserve has said it will raise rates when it sees a sustained rebound in the economy. Economists polled by Reuters expect the next nonfarm payrolls report, to be released on Thursday because of Friday’s July 4 holiday, will show the U.S. economy added 232,000 jobs in June after May’s unexpected 280,000 surge.
