Euro Volatility Climbs as Greek Debt Negotiations Draw Scrutiny

April 24, 2015 Bloomberg

By: Lananh Nguyen

Volatility in the euro against the dollar climbed for the first time in three days as Greece and its creditors struggled to make progress in debt negotiations.

The common currency’s two-week implied volatility, a measure of future price swings, climbed to 13.27 percent, exceeding this year’s average. The euro pared gains after officials hurled abuse at Greek Finance Minister Yanis Varoufakis behind closed doors as they shut down his bid to find a shortcut to releasing financial aid.

“We’re going through some heightened volatility” in the euro, Scott Smith, senior market analyst at Cambridge Global Payments in Calgary, said by phone Friday.

The 19-nation euro rose 0.3 percent to $1.0856 at 1:14 p.m. New York time, after gaining as much as 0.7 percent. The common currency dropped 0.2 percent to 129.21 yen.

The euro has gained 1.2 percent versus the dollar in April, poised to snap a nine-month losing streak.

Jeroen Dijsselbloem, the Dutch chairman of the euro-zone finance chiefs’ group, ruled out making a partial aid payment in exchange for a narrower program of policy changes after a stormy meeting in Riga, Latvia, in which Varoufakis was heavily criticized by his euro-area colleagues about his failure to deliver economic changes.

Greek Talks

“It was a very critical discussion and it showed a great sense of urgency around the room,” Dijsselbloem said at a news conference after the meeting.

Greece’s government must present detailed proposals to European creditors for disbursement of the next tranche of its 240 billion-euro ($261 billion) bailout loan or risk running out of cash. Earlier this week, the administration issued an order for local governments to move cash reserves to the Bank of Greece to provide cash for salaries, pensions and a repayment to the International Monetary Fund.

“This volatility is going to increase until the policy makers can agree to something,” said Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York. “The bias is obviously lower for the euro.”

The euro gained against the dollar for a second day as government reports continued to raise doubts about the economic outlook and the willingness of the Federal Reserve to raise interest rates. Jobless claims and manufacturing output both showed deterioration this week.

The dollar slumped after data showed orders for business equipment unexpectedly fell in March for a seventh consecutive month, a sign capital investment will remain sluggish.

The Bloomberg Dollar Spot Index fell 0.2 percent to 1,182.17. It’s declined this month after gaining for the past three quarters.

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