Euro Reaches 4-Month Low as Cyprus Reignites Regional Concern

The euro reached a four-month low versus the dollar as investors assessed whether Cyprus’s bailout signaled deeper private-sector losses in bank restucturings.

The 17-nation currency briefly extended losses as Europe considers a plan for deposits of more than 100,000 euros ($128,760) to face losses in a bank restructuring, Reuters reported, citing a spokeswoman for European Commissioner Michel Barnier. Japan’s currency fell against most of its 16 major peers after central-bank Governor Haruhiko pledged to buy more government bonds to accelerate an end to deflation.

“The major concern relating to Cyprus is will there be a fallout in banks in other periphery countries related to deposit flight?” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “As different comments come out on this topic, the euro seems to be whipsawing.”

The euro rose 0.1 percent to $1.2861 at 5 p.m. in New York, after touching the weakest level since Nov. 22. Europe’s shared currency climbed 0.4 percent to 121.48 yen. Japan’s currency weakened 0.3 percent to 94.44 per dollar.

The shared currency traded below its 200-day moving average for a second day.

Forint Rallies

Hungary’s forint gained against the euro by the most since January after the central bank cuts its benchmark interest-rate by 25 basis points to 5 percent, raising the threshold for more reductions. The currency strengthened 0.6 percent to 304.26 to the euro.

India’s currency fell as much as 0.4 percent to the greenback, the most since March 19, amid concern the government won’t be able to rein in a record current-account deficit as inflows into equities slow. The rupee declined 0.3 percent to 54.3650 per dollar.

South Korea’s won extended gains from yesterday against the U.S. currency.

“Exporters are repatriating their overseas income at the end of the month, supporting the currency,” said Hong Seok Chan, an analyst at Daishin Economic Research Institute in Seoul. “Still, concerns about Cyprus are keeping investors from aggressive dollar sales.”

Won Strength

The won appreciated 0.5 percent to 1,105.58 per dollar, according to data compiled by Bloomberg. It touched 1,104.35 earlier, the strongest level since March 14.

Kuroda, who took up his post last week, reiterated today his pledge to do “whatever it takes” to end more than a decade of deflation in Japan, saying that expectations for rising prices would be positive for the world’s third-largest economy.

He told lawmakers that the BOJ will discuss purchasing more bonds with longer maturities. Policy specifics will be considered at the central bank board meeting, Kuroda said.

The BOJ will set a new bond-buying target, which the central bank will discuss at its April 3-4 meeting, the Nikkei newspaper reported without attribution.

“We’ve heard the rhetoric, we know they plan on getting more aggressive, and now it’s time for the Bank of Japan (8301) to act on that,” said RBS Securities’ Daingerfield.

Technical Considerations

The greenback’s advance versus the yen may stall, Citigroup Inc. said, citing declines in its relative strength index.

The U.S. currency’s 14-day RSI against its Japanese counterpart was 50.4 today, according to data compiled by Bloomberg. That’s near the neckline of 50 in a so-called head- and-shoulders chart formation, and a drop below this level may indicate a pause in the U.S. currency’s rally, Citigroup foreign-exchange strategist Osamu Takashima wrote today in a note to clients.

ECB executive board member Benoit Coeure said that Jeroen Dijsselbloem, who heads the group of euro-area finance ministers, wasn’t correct in suggesting yesterday that the restructuring of the Cypriot banking system would serve as a model for other countries.

“The experience of Cyprus isn’t a model for the rest of the euro zone,” Coeure said today on Europe 1 radio. “All countries have different problems -- economic problems, problems of unemployment -- but no country has the same concentration of problems as Cyprus.”

Swaps Data

Credit-default swaps tied to Spanish bank Banco Santander SA jumped 16.6 basis points to 306.7 basis points yesterday, the biggest increase since Feb. 26, according to prices compiled by Bloomberg. Contracts linked to lender BNP Paribas SA rose 12 basis points to 168.6 basis points.

Credit swaps protecting against a borrower’s default typically fall as investors’ perceptions of creditworthiness rise and increase as they deteriorate. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

“The market clearly is still worried about the comments yesterday on the Cyprus situation setting a precedent for other countries,” Adam Cole, head of Group of 10 currency strategy in London at Royal Bank of Canada, said in a telephone interview. “What it’s doing is reopening some of the tail risk that the European Central Bank has done such a good job taking off.”

The euro fell 1.7 percent in the past month, according to Bloomberg Correlation-Weighted Indexes which track 10 developed- nation currencies. The yen weakened 2 percent, the biggest decline, while the dollar gained 0.7 percent.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.