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Euro rallies vs dollar ahead of expected Greek default

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The euro strengthened against the dollar on Monday despite Greece’s institution of capital controls and shutting banks ahead of an expected default on its debt.

The euro recovered and then some from losses over the weekend as Greece’s debt drama took unexpected turns. Athens’ shock announcement of a July 5 referendum on creditors’ bailout proposals effectively broke off negotiations that would extend the government’s financial lifeline.

On Monday, Greek Prime Minister Alexis Tsipras implied that Greece would default on a 1.5 billion-euro debt payment due Tuesday to the International Monetary Fund, a partner in the bailout with the European Commission and the European Central Bank.

“(How) is it possible the creditors are waiting for the IMF payment while our banks are being suffocated?” he asked, adding: “Once they decide to stop the suffocation, they will be paid.

“The euro was buying $1.1247 around 2100 GMT, up from $1.1160 late Friday. On Sunday the single currency had fallen to a four-week low of $1.0955.

Kathy Lien of BK Asset Management said that many traders were “thoroughly confused” by the euro’s performance on Monday, because with an IMF default looming, the euro should be trading much lower against the greenback but instead it was much higher.

“We do not believe that the turnaround in the currency represents the market’s satisfaction with the imminent default,” said Lien. “Some investors are still hopeful that a deal would be reached eventually given the supportive comments from eurozone officials.”

Standard & Poor’s, meanwhile, downgraded Greece’s credit rating deeper into junk territory, saying it saw a commercial debt default within the next six months and a 50 percent chance Greece will exit the eurozone.

2100 GMT Monday Friday

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EUR/USD 1.1247 1.1160

EUR/JPY 137.83 138.26

EUR/CHF 1.0404 1.0423

EUR/GBP 0.7148 0.7090

USD/JPY 122.55 123.89

USD/CHF 0.9249 0.9340

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