Euro Weakens to 4-Month Low on Cypriot Fallout; Yen Rises
The euro fell to a four-month low versus the dollar as the Cyprus bailout plan added to concern about the safety of the region’s bond holdings and deposits.
The 17-nation currency pared losses as Dutch Finance Minister Jeroen Dijsselbloem said Cyprus is a specific case, contradicting a Reuters report that Dijsselbloem called the bailout a model for Europe. The bailout plan will see Cyprus Popular Bank Plc wound down, wiping out bondholders, and will impose losses on some depositors at Bank of Cyprus Plc. (BOCY) The yen erased losses before central bank Governor Haruhiko Kuroda speaks to lawmakers tomorrow.
“There’s a queue of concerns that remain for the single currency, even if we were to see any type of concern about Cyprus abate,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a telephone interview. “The region’s stuck in recession.”
The euro weakened 1.1 percent to $1.2853 as of 5 p.m. in New York, after touching the least since Nov. 22. Europe’s shared currency dropped 1.4 percent to 121.04 yen. Japan’s currency rallied 0.3 percent to 94.17 per dollar.
South Korea’s currency strengthened as the Cyprus agreement eased concern Europe’s debt crisis will escalate. The won rose 0.8 percent to 1,110.85 per dollar.
The shekel gained as much as 0.9 percent to the greenback after the Bank of Israel kept its benchmark interest rate unchanged for a third month, as policy makers focus more on climbing domestic home prices than on the pace of recovery in the global economy.
Israel’s currency rose 0.6 percent to 3.6331 to the dollar.
The Cyprus accord spares bank accounts below the insured limit of 100,000 euros ($128,550). It imposes losses that two European Union officials said would be no more than 40 percent on uninsured depositors at Bank of Cyprus, which will take over the viable assets of Cyprus Popular Bank.
The European Central Bank said it won’t stop the Cypriot central bank from providing the island’s banking sector with emergency funding.
“The issues in Europe are more ingrained and deeper than the rate is showing,” said Mark Noble, a senior foreign- exchange trader at Silicon Valley Bank in Santa Clara, California, in a telephone interview. “They are still not out of the woods economically, there’s baggage in the outer core of the euro group, so I think there is still more pain ahead.”
Yields on Spanish 10-year bonds rose 10 basis points to 4.96 percent, snapping three days of a declines, and those of Italy increase 10 basis points to 4.61 percent.
“We wish to stay in the euro zone but leaving the euro zone now is a valid point that has to be explored,” Nicholas Papadopoulos, chairman of the parliamentary finance committee, said in a Bloomberg television interview. “We are going to enter into a very deep recession, high unemployment with no prospect of growth and we need to examine if there are other ways to solve these hurdles.”
The euro sank 0.7 percent against the dollar last week and tumbled 1.5 percent versus the yen, the most since the five days ended Feb. 8, as Cyprus talks coincided with data signaling the trading bloc’s economy is worsening.
“What people are more worried about, which is really deterring people from going back into the euro zone in size, is the fact that a lot of trust has been broken,” Geoffrey Yu, a senior currency strategist at UBS AG in London, said in a telephone interview. “People are wary about the future of the euro at this point because of the precedents that have been established.”
The euro fell 1.2 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen dropped 2 percent, while the dollar rose 0.6 percent.
The yen rallied, erasing an earlier loss, as investors sought the currency as a haven. Kuroda said last week at his inaugural press conference as Japan’s central bank chief that he’ll do whatever it takes to achieve a 2 percent inflation target.
“We do expect fireworks from Kuroda come his first policy meeting” on April 3-4, said Callum Henderson, the head of currency research at Standard Chartered Plc in Singapore. One option for Kuroda would be to announce an earlier start to open- ended asset purchases originally set for 2014, which may help push the dollar to 102 yen in the second quarter, he said.
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