LONDON: The euro fell against the dollar on Friday, while the cost of hedging against further euro weakness jumped, on concerns about the fate of Greece as it teetered on the edge of default and an exit from the euro zone.
The euro has so far proved surprisingly resilient to worries over Greece. Although it was half a percent weaker against the dollar on Friday at $1.1307, it was still on track for a third consecutive week of gains.
For the quarter, it is on track for its best performance in over four years.
That comes despite weeks of talks between Greece and its creditors as they try, fruitlessly so far, to agree on a cash-for-reforms deal for the country in order to avoid a "Grexit".
"Nobody in FX cares about Greece," wrote Commerzbank strategists in a research note.
Greek savers pulled more than 1 billion euros from banks in a single day on Thursday, three senior banking sources told Reuters, with the pace of withdrawals gaining speed since talks between the government and its creditors collapsed last weekend. Sonja Marten, FX strategist at DZ Bank in Frankfurt, said that as the deadline for Greece's 1.6 billion euro repayment to the International Monetary Fund approached, investors were becoming more nervous.
"We've had deadlines and more deadlines, and none of them actually turned out to be final, but now we're approaching what is going to be a final deadline," Marten said.
"Uncertainty is of course bad (for the euro) .... and any solution will be positive for the euro, when it comes, because it will remove some of that uncertainty. How lasting that will be will be an entirely different question." As investors worried that Greece and its creditors would not reach a deal, the cost of hedging against further euro weakness against the dollar over the next month jumped to 13.4 percent . That was the biggest jump in three months, Reuters data showed.
Versus sterling, which strategists say is acting as something of a safe-haven, the euro fell 0.4 percent to 71.26 pence, its weakest since May 28.
It was also lower against the Swiss franc and yen, both traditionally safe plays.
The dollar inched up 0.1 percent on the day to 123.04 yen , but was down from this week's high of 124.465 yen, weakened by a cautious message from the US Federal Reserve that prompted uncertainty over when rates will start to rise.
It will probably trade in a range of around 122.50 yen to 125.00 yen in the next couple of weeks, said Masashi Murata, senior currency strategist for Brown Brothers Harriman in Tokyo.
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