June 28, 2015 / 7:06 PM / 4 years ago

Euro slumps, looming Greek default prompts risk selling

WELLINGTON (Reuters) - Euro exchange rates fell in Asia early on Monday after Greece failed to strike a deal with its international lenders to secure more emergency funding at the weekend, forcing it to introduce capital controls and keep its banks shut.

New 20 Euro banknotes are presented at the Austrian national bank in Vienna February 24, 2015. The banknote features new security characteristics and will be issued on November 15, 2015. REUTERS/Leonhard Foeger

The euro EUR= fell nearly 2 U.S. cents to a one-month low around $1.0990 in early Asia Pacific trade according to Reuters data, from around $1.1165 late on Friday.

“It looks like the Greek banks will be closed for a week, so that would take it past the June 30 deadline,” said Tim Kelleher, head of institutional FX sales at ASB bank in Auckland.

“Greece is not out of the euro yet, but they’ve only got 48 hours left.”

Against the Swiss franc EURCHF=R, the euro fell to around 1.0260 francs, its weakest level since late April, while it plumbed a one-month low around 134.90 yen EURJPY=R as investors piled into the Swiss and Japanese currencies which often appreciate during times of uncertainty.

The dollar JPY= fell to a one-week low of 122.55 yen.

Concerns about a liquidity crunch at Greek banks rose after the country’s financial stability council recommended keeping banks shut for the next six working days.

A failure by Greece to repay a 1.6 billion-euro debt owed to the International Monetary Fund by a deadline on Tuesday could lead to its exit from the euro zone, which many investors fear may fatally weaken the entire currency bloc.

The prospect of a Greek default has risen after Athens effectively rejected proposals made by its European lenders in exchange for more credit at last-minute bailout talks at the weekend.

Greek Prime Minister Alexis Tsipras shocked European officials by instead calling for a referendum to be held on July 5 to ask Greek voters to decide on whether to accept the bailout terms which his government opposes.

Analysts said that in addition to increasing uncertainties about Greece’s future in the euro zone, the vote would raise political risks for Tsipras’s government if the public votes in favor of accepting the bailout proposals.

“The escalation of political uncertainty in Greece will likely imply a cautious stance from investors, who we believe will demonstrate a broad-based flight to quality,” Barclays Capital analysts said in a note.

“Under a risk-off environment, we expect the USD and the JPY to benefit in FX, while we look for high-beta currencies, including commodity currencies, and the EUR to come under pressure in the coming week.”

Reporting by Naomi Tajitsu; Editing by Matthew Lewis and Greg Mahlich

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