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By Bloomberg

Currency volatility increased along with the dollar as Germany and Greece head for a showdown that is spurring traders to take out insurance against euro losses.

The premium to protect against a decline in the euro versus the greenback rose to the highest since Jan. 23 -- the day after the European Central Bank announced it would buy sovereign bonds -- before Greece’s official creditors hold an emergency meeting. A gauge of the dollar closed at its highest level in data going back to 2004 as comments from regional Federal Reserve presidents suggested policy makers may raise interest rates by mid-year.

“The outcome of the Greek bailout saga is highly uncertain,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “You’ll get pre-positioning and repositioning after the event, depending on whether it’s a positive or negative surprise. It might cause some volatility,” and that would support dollar buying, he said.

The dollar was at $1.1319 per euro at 6:57 a.m. in London after appreciating to $1.1098 on Jan. 26, the strongest level since September 2003. The U.S. currency gained 0.1 percent to 119.57 yen. The euro was little changed at 135.34 yen.

JPMorgan Chase & Co.’s global gauge of currency price swings jumped 19 basis points on Tuesday to 11.24 percent. The gauge has surged from a record-low 5.28 percent on July 4. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, climbed 16 percent in the same period to close yesterday at 1,169.35.

Euro Losses

Traders paid more to protect against euro losses as German Finance Minister Wolfgang Schaeuble doused the outlook for Greece’s meeting. There are no plans to give Greece more time to negotiate, and “it’s over” if the nation doesn’t want the final tranche of its existing aid program, Schaeuble told reporters in Istanbul after a Group of 20 meeting.

Greek Prime Minister Alexis Tsipras told parliament there is “no way back” for his government, which later won a confidence vote.

The premium to protect against declines in the euro versus the dollar over gains rose as high as 1.78 percentage points, the most since Jan. 23, according to data on one-month risk reversals compiled by Bloomberg.

“It’s still a very uncertain situation so that uncertainty in part is also weighing on the euro,” said Phyllis Papadavid, a senior foreign-exchange strategist at BNP Paribas SA in London. “They will come to a deal of some sort, but it’s the interim period before any deal is struck that creates a lot of uncertainty and a lot of volatility.”

Euro’s Slide

The euro has tumbled 4 percent this year, the worst performer after the Canadian dollar of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 3.4 percent.

“Raising rates in June looks like the attractive option for me,” Richmond Fed President Jeffrey Lacker told reporters on Tuesday after a speech in Raleigh, North Carolina. The Fed is getting “closer and closer” to boosting borrowing costs after faster-than-expected wage increases, San Francisco Fed President John Williams said in interview with the Financial Times.

Futures contracts indicate there’s a 25 percent chance the Fed will boost its benchmark to at least 0.5 percent by its June meeting, data compiled by Bloomberg show. Policy makers have kept the target in a range of zero to 0.25 percent since December 2008.

“Fed Presidents Williams and Lacker both added to the recent chorus of regional Fed presidents suggesting mid-2015 was an appropriate timeframe for rate hikes to begin,” BNP analysts including global head of foreign-exchange strategy Steven Saywell in London, wrote in a note to clients.

The French bank predicts the dollar will strengthen against the yen and euro, the note said.