Fears of a post-Brexit decline in the euro were on display in the options markets, underlining how market instability following a vote by the UK to leave the EU threatens to spread beyond sterling.

The cost of protecting against a fall in the single currency against the dollar soared, amid increasing expectations among foreign exchange strategists that the eurozone currency would become vulnerable to political instability on the continent if the Leave camp prevailed at the June 23 referendum.

The gap in one-month put and call options, known as risk reversal, reached its highest level since the 2011 eurozone crisis, while one-month euro-yen risk reversal was also elevated.

The euro has also come under pressure, losing 1.7 per cent in the past four trading days, although it gained some relief on Wednesday, trading 0.2 per cent higher at $1.1231.

Several analysts regard the euro as a haven currency, rising at times of market risk aversion. But its recent losses stand in contrast to gains made by other haven currencies, such as the yen and the Swiss franc, suggesting Brexit implications are weighing on the eurozone currency.

“One of the key risks that we see is that with increasing odds of a Brexit, so are the odds that the entire stability of the EU and euro area might be at risk,” said economists at RBC Capital.

Citigroup analysts added that lack of confidence in European markets was likely to keep the euro under pressure in the short term.

All year, moves in the euro have largely been triggered by the back and forth of the dollar and market expectations of a US rate rise.

Marc Chandler at Brown Brothers Harriman said that while recent euro weakness was partly influenced by market belief that the Fed could still raise rates, Brexit fears have played a growing part in the euro’s depreciation.

“I do agree the euro has weakened as Brexit fears have increased. But if we get past Brexit, the euro bounces,” said Mr Chandler.

BNP Paribas analysts were more sceptical at the risk premium in the euro, given the protection the eurozone gets from its current account surplus and its role as a funding currency.

“You could see the opposite phenomenon,” said Steven Saywell of BNP, “with heightened uncertainty leading to funding currencies strengthening”.

Not everyone agrees that the euro is a haven currency. “Last year, the euro was exhibiting safe haven behaviour,” said Jane Foley, G10 foreign exchange strategist at Rabobank. “But a lot of this behaviour was down to short covering.”

Euro short-covering has run its course, she added, positions have normalised and that made the euro vulnerable to negative eurozone developments.

“If there is a Brexit next week, we would not expect the euro to behave as a safe haven but rather we would expect to see the unit under pressure on fear of further discord within the region,” said Ms Foley, anticipating a fall towards $1.08.

The euro has climbed 3.5 per cent against the dollar this year.

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