The euro dropped sharply Monday on the expectation that Greece will likely miss a coming debt payment to the International Monetary Fund, after its government decided over the weekend to put the question of whether or not to accept a reform proposal that would unlock vital bailout funds to a referendum.
The euro EURUSD, -0.4567% recently traded at $1.1112, paring losses after falling to $1.0956, its lowest level in about three weeks.
EURUSD, -0.4567% Uncertainty surrounding Greece’s future in the eurozone intensified after Prime Minister Alexis Tsipras said he would ask the Greek people to vote on a proposal for reform measures issued by creditors on June 25. The Greek Parliament quickly approved the referendum, which is scheduled for July 5, five days after Greece is scheduled to make a €1.54 billion ($1.75 billion) payment to the International Monetary Fund.
Greece’s creditors refused Greece’s suggestion that they extend the country’s current bailout program until after the referendum and ECB President Mario Draghi said the central bank wouldn’t provide any additional liquidity to the Greek banking system — prompting Tsipras to announce that Greek banks and the Athens stock market would remain closed until after the referendum.
Jeremy Stretch, a currency strategist at CIBC, said the slide in the euro so far has been “relatively modest,” a sign that contagion firewalls imposed by the European Central Bank are working effectively.
But Stretch said markets could see another sharp move lower if Greece fails to repay the IMF on Tuesday—a likely outcome.
Elsewhere, the Swiss National Bank intervened in the currency market Sunday evening to help stabilize the franc after the currency suddenly surged against the euro, according to Thomas Jordan, the central bank’s chairman.
Stocks in Asia and Europe tumbled Monday, and U.S. stocks also looked set to open lower.
