[NEW YORK] 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 (S$2.3 billion) 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 US$1.1247 around 2100 GMT, up from US$1.1160 late Friday. On Sunday the single currency had fallen to a four-week low of US$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 Ms 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 per cent chance Greece will exit the eurozone.
Read more on the Greek crisis here.