London - The euro fell for a second day against the dollar as investor concerns over Greece’s future grew, with the European Central Bank said to be studying ways to rein in emergency financing to the nation’s lenders.
The 19-nation single currency depreciated against all 16 of its major peers. ECB staff produced a proposal to increase the so-called haircuts that banks take on the collateral they post when borrowing from the Bank of Greece, people with knowledge of the discussions said.
“Developments with regards to Greece continue to deteriorate, which is increasing risk of default,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. “These negative headlines are weighing on the euro.”
The euro tumbled 0.5 percent to $1.0684 as of 10.27am in London, following a 0.6 percent decline on Monday. It weakened 0.3 percent to 127.59 yen.
While the measures to curtail the ECB’s Emergency Liquidity Assistance to Greek banks haven’t been formally discussed by the Governing Council, they may be considered if the nation fails to convince euro-area finance ministers it can reform its economy and secure bailout funds, one of the people with knowledge of the matter said.
‘High farce’
Greece faces increasing pressure to come to an agreement with its creditors for more aid, without which it may run out of money as soon as next month. Euro-area finance ministers are due to meet on Friday to discuss Greece’s proposals for the economic reforms that have been demanded in return for the final payments under its 2012 bailout.
Bad news is coming out of Greece almost daily. Prime Minister Alexis Tsipras on Monday ordered local governments to move funds to the central bank to provide cash for salaries, pensions and a repayment to the International Monetary Fund.
Anthony Peters of Swiss Investment Corp. in London called the move a moment of “high farce”, saying in a note on Tuesday that it was staged “more for the benefit of the spectators than in order to get their country out of schtuck”.
Syriza’s victory
The euro has weakened 5.4 percent in the past three months against a basket of peers tracked by Bloomberg Correlation Weighted Indexes, the worst performance after the Swiss franc. During this time, the Syriza party came to power in Greece, setting in motion the aid talks.
The ECB also began its quantitative-easing stimulus plan during this period, pledging to buy 60 billion euros of public debt each month through September 2016 and sending bond yields tumbling below zero in countries from Germany to France.
“Greece remains the major risk factor for the euro,” said Ian Stannard, head of European foreign exchange strategy at Morgan Stanley in London. Together with the ECB’s monetary policy and QE, that’s “set to keep the euro under pressure”.
