The euro dropped more than one per cent as trading opened in Asia Monday after Greece's government moved the nation a step closer to leaving the currency bloc by effectively asking voters to decide on its membership.

[LONDON] The euro dropped more than one per cent as trading opened in Asia Monday after Greece's government moved the nation a step closer to leaving the currency bloc by effectively asking voters to decide on its membership.

The yen climbed against all 10 major developed counterparts as investors sought the haven of the Japanese currency. Greek Prime Minister Alexis Tsipras rejected the latest aid proposals by creditors on Friday, announcing a referendum on them for July 5 and saying he would advocate a "no" vote. With cash flooding out of its banks at a record pace and the bailout expiring Tuesday, Greece plans to shut lenders Monday.

"These latest developments will lead to a resumption of the trend decline in the euro," Athanasios Vamvakidis, head of Group-of-10 foreign-exchange strategy at Bank of America Merrill Lynch in London, wrote in a client note. "Whilst we had been arguing for a strong policy response to a negative outcome in Greece, the timeline of the referendum is likely to introduce some delays to EU policy makers' ability to act decisively." The euro tumbled 1.5 per cent to US$1.1004 at 6:03am on Monday in Sydney. It declined 1.6 per cent last week, the biggest depreciation since the five days through May 22. The yen rose 1 per cent to 122.58 per dollar on Monday.

The Aussie declined 0.2 per cent to 76.38 US cents and the kiwi dollar dropped 0.6 per cent to 68.20 US cents.

ECB Toolkit

European Central Bank President Mario Draghi convened his Governing Council on Sunday for an extraordinary meeting, at which it froze the level of emergency aid available to Greek banks. Greece will shut banks on Monday, according to Piraeus Bank SA Chief Executive Officer Anthimos Thomopoulos. Prime Minister Alexis Tsipras made no reference to the bank holiday in a televised statement at about 9pm in Athens.

"The Governing Council is closely monitoring the situation in financial markets and the potential implications for the monetary-policy stance and for the balance of risks to price stability in the euro area," it said in a statement. It's "determined to use all the instruments available within its mandate." The ECB is already pumping 60 billion euros (US$66 billion) into the financial system each month, weighing on the currency. The euro has weakened 8.9 per cent against the dollar this year, after a 12 per cent decline in 2014.

Greek Referendum

Greece's population may still vote "yes" in the referendum, and find a way to keep the nation inside the currency bloc. Its current aid program expires on June 30, the same day it's due to make a payment of US$1.7 billion to the International Monetary Fund.

Even as the euro suffered from the Greece-induced crisis, gauges of volatility have held below the highs reached during 2011. Helping to prevent panic, the ECB has shored up backstops to lessen the likelihood of a domino-like round of exits should a member leave the monetary union.

Implied one-month volatility for euro-dollar trading rose to 11.835 per cent Monday, compared with a level of 18.42 per cent reached in September 2011.

It may not all be bad news for the currency, with some investors saying it may ultimately be stronger without Greece, after an initial selloff.

"In the medium term the investors may begin to say, 'hold on, is Europe stronger without its weakest member?'' Jane Foley, a senior currency strategist at Rabobank International in London, said before the referendum was announced.