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 The euro had sunk below $1.10 in initial trade in Asia after a vote
that a number of major banks said made a 'Grexit' the most likely
option to end months of crisis and a cash crunch that has seen
Greece's banks almost completely closed for a week.
But the common currency bounced quickly and in Europe was down 0.6
percent at $1.1035 <EUR=EBS>, given some help by the resignation of
Greek Finance Minister Yanis Varoufakis and holding well inside a
range it has kept since the end of April.
That was similar to how the currency traded last Monday after the
collapse of talks between euro zone leaders and Athens and reflected
the uncertainty of many forex players about how much damage a Greek
departure would actually do to the euro.
Some said they still saw the odds as very balanced on whether the
two sides could come to a deal to avert that anyway.
"To me its all down to how (German Chancellor Angela) Merkel wants
to play her hand. Varoufakis' departure tends to suggest softer
negotiations," said Richard Benson, Co-Head of portfolio investments
with currency fund managers Millennium Global in London.
Like a number of others, he noted that the outlook for the European
economy was probably worsened by the uncertainty generated by the
Greek crisis and that was likely to put more downward pressure on
euro zone interest rates.
"The euro is coming back following the initial post-referendum drop,
but this belies vulnerability in days ahead," said Josh O'Byrne, a
London-based strategist with the FX market's largest banking player,
Citi.
Another effect of an easier monetary policy outlook is to draw
investors into core European government debt including German Bunds
and some pointed to that as a short-term positive for the euro.
"For all the worry about Greece and the future of the euro zone,
that is leading people to buy core European assets as a safe haven
and that, ironically you might say, supports the euro," said Jane
Foley, a strategist with Rabobank in London.
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SWISS INTERVENTION?
The Swiss franc, normally a natural recipient of funds in search of
a safe haven from the euro zone's troubles, was flat against the
euro <EURCHF=>. That prompted talk among dealers of renewed
intervention by the Swiss National Bank.
The SNB, which confirmed last week it had been intervening to weaken
the franc, as per its normal procedure declined to comment on
Monday's speculation.
The euro skidded to a six-week low of 133.700 yen early in the Asian
session, from 136.185 late on Friday, before rebounding to 135.45,
down 0.5 percent.
"This is going to be extremely messy, most divorces are," said
Stephen Jen, a partner at macroeconomics-focussed hedge fund SLJ
Macro Partners, said.
"But if you plot Iceland and Ireland on a GDP chart over the past
few years, you can’t distinguish them. When we think about Greece,
we do need to keep in mind that there are different paths to
recovery."
(Editing by Toby Chopra)
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