What explains the recovery in the euro?

Despite the crisis in Greece the euro remains near multi-week highs against the dollar. Some have suggested that the euro has actually benefited from the uncertainty, due to the unwinding of short positions linked to “carry trades”. But this rather convoluted explanation does not stack up. Instead, our interpretation is that the markets have become less concerned about the risks posed by “Grexit”, which has allowed the euro to be supported by a more straightforward shift in yield differentials.