Currency traders are taking Greece’s bailout agreement as a green light to sell the euro.
The single currency erased an earlier advance almost as soon as the news broke, tumbling the most in more than a week amid speculation a deal will produce enough calm for the Federal Reserve to raise U.S. interest rates this year. The euro also pared Friday’s gains as investors digested the fact that the agreement still needs the approval of several national parliaments, including Greece’s, before formal bailout negotiations can start.
“In the absence of Grexit, the Fed’s rate hike in September or December looks like a done deal,” said Jim Leaviss, a London-based money manager at M&G Investments, which oversees $400 billion. “The dollar will be on a strengthening trend against the euro.”
The euro was also put under pressure as a rally in European stocks created demand for hedges against currency losses. The agreement on Greek aid will come as some relief to investors after six months of negotiations pushed the nation to the brink of leaving the euro zone.
The euro dropped 0.8 percent to $1.1068 as of 7:04 a.m. New York time, after a 1.1 percent gain on July 10. It slipped 0.3 percent to 136.57 yen, paring Friday’s 2.3 percent jump.
“You may still need to see the proposals passing the Greek parliament before generating a rebound,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London.
The 19-nation currency, which has already weakened 8.5 percent against the dollar this year, is likely to continue depreciating as the European Central Bank pours unprecedented amounts of cash into the continent’s economy, Stannard said.
Implied volatility in the euro-dollar exchange rate subsided by the most since February on Friday as an end to the Greek turmoil looked to be in sight. The three-month gauge of anticipated price swings fell further on Monday to 10.9 percent, down from a three-year high of 13.1 percent on June 29.
After 17 hours of negotiations in Brussels, Greek Prime Minister Alexis Tsipras surrendered to European demands for immediate action to qualify for up to 86 billion euros of aid needed to keep his country in the currency union. He has until Wednesday to pass into law key creditor demands.
“The instant reaction” to the news was “bull-euro,” said Vincent Chaigneau, London-based global head of rates and foreign-exchange strategy at Societe Generale SA. “But I’m really not sure we stick to that. Let’s see what the political momentum in Greece is today. Demands are fairly draconian.”
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