Euro Falls Toward Four-Month Low Versus Dollar on Cyprus

The euro traded 0.3 percent from the lowest in almost four months against the dollar after the Cypriot parliament voted down a bank-deposit levy needed to secure a bailout, risking renewed tumult in the currency bloc.

The 17-nation currency weakened for a fourth day versus the yen as an official familiar with the matter said European policy makers in Cyprus discussed further capital controls and extending a bank holiday through to the end of the week. The yen and dollar rose against most major peers as investors sought havens on concern Europe’s crisis will worsen. New Zealand’s currency held declines after Finance Minister Bill English said a drought has reduced pressure on interest rates.

“It’s an impasse with the Cyprus parliament rejecting the proposals from the eurogroup, and they will have to engage in further negotiations,” said Hans Kunnen, the Sydney-based chief economist at St. George Bank Ltd. “This just adds to the weight against the euro.”

The euro was little changed at $1.2887 as of 6:37 a.m. in London from the New York close yesterday, when it touched $1.2844, the weakest since Nov. 22. The shared currency was at 122.58 yen from 122.59 and traded at 1.2204 Swiss francs following a 0.5 percent drop yesterday. The dollar fetched 95.12 yen from 95.16.

Japanese financial markets were closed today for a national holiday.

The Cypriot parliament yesterday rejected an unprecedented levy on bank deposits, dealing a blow to European plans to force depositors to shoulder part of the country’s rescue.

ECB Meeting

Officials from the European Central Bank, the International Monetary Fund and the European Commission may wait until the outcome of an ECB Governing Council meeting that starts in Frankfurt today before making any decisions, said a European official familiar with the talks, who spoke on condition of anonymity because the discussions are confidential.

“The uncertainty in Cyprus will continue to cause headaches for investors,” Spiros Papadopoulos, a Sydney-based economist at National Australia Bank Ltd. wrote in a note to clients today. “The failure to agree on some form of ‘deposit tax’ maintains the pressure on Cyprus but the consequences of voting in favor of the package are hardly favorable either.”

Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest asset manager, said Cyprus isn’t a major problem.

“It has some symbolism impact on Europe, but it’s not a really major economic issue,” Fink said in a Bloomberg Television interview in Hong Kong today. “It’s a $10 billion issue. It does remind us of the frailty of Europe. It does remind us that the European fix will be multiple years.”

Fed Meeting

Fink forecast the yen will stabilize at 95 yen to 100 yen to the dollar this year.

The U.S. currency weakened against the yen before the Federal Reserve ends a two-day meeting today amid speculation policy makers will decide to keep buying bonds to support economic growth. The Federal Open Market Committee will issue a statement and economic forecasts after ending its policy meeting, and Fed Chairman Ben S. Bernanke will brief reporters.

“You’re beginning to more clearly probe to the downside in dollar-yen and that story continues into the Fed,” said Robert Rennie, the chief currency strategist in Sydney at Westpac Banking Corp. “The cold hard reality is that the offshore environment is not really one where we can see a pick-up in outflows from Japan.”

The yen has risen 1.1 percent in the past week, the biggest gainer after the pound among 10 developed nation currencies tracked by Bloomberg Correlation Weighted Indexes. The euro has dropped 0.7 percent while the dollar is little changed.

Current Account Gap

New Zealand’s currency fell against 15 of its 16 major peers as traders wagered the nation’s central bank will increase benchmark interest rates by 14 basis points over 12 months, down from 23 basis points on March 14, according to a Credit Suisse Group AG Index based on swaps.

Finance Minister English said in a Bloomberg Television interview that the nation’s currency may be about 15 percent overvalued, citing the Reserve Bank of New Zealand. Intervention in currency markets would be futile, he said.

The nation’s current-account gap widened to 5 percent of gross domestic product in the 12 months ended Dec. 31, compared with the median forecast of economists for 4.9 percent, the statistics bureau said today.

The New Zealand dollar fell 0.3 percent to 82.25 U.S. cents and weakened 0.3 percent to 78.23 yen.

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