Euro at Almost Lowest in Four Months as Cyprus Seeks Rescue PlanJoseph Ciolli and John Detrixhe
The euro traded at almost the lowest in four months versus the dollar as officials in Cyprus worked to produce a plan to secure financial aid and avoid the collapse of its banking system.
The 17-nation currency fell against most of its 16 major peers as the European Central Bank said it may cut off emergency funds to Cypriot banks after March 25 unless a plan to ensure bank solvency is in place. Standard & Poor’s cut Cyprus’s long-term sovereign rating by one level. The euro declined earlier today after a report showed regional services and manufacturing output contracted in March. The yen gained even as the Bank of Japan’s governor vowed to pursue bold stimulus.
“Cyprus is working on plan B and struggling to come up with it,” Greg Anderson, New York-based head of Group of 10 currency strategy at Citigroup Inc., said in a telephone interview. “The ECB was friendly earlier this week in saying that they would provide liquidity, now they’re saying they might just do that through Monday.”
The euro fell 0.3 percent to $1.2899 at 5 p.m. in New York. It dropped to $1.2844 on March 19, the lowest since Nov. 22. Europe’s shared currency slid 1.4 percent to 122.42 yen. Japan’s currency appreciated 1.2 percent to 94.90 per dollar after reaching 96.71 on March 12, the weakest since August 2009.
The Czech Republic’s currency fell 0.5 percent against the greenback, the fifth-most of the dollar’s 31 most-traded peers. The koruna weakened for a fourth-straight day to 20 to its U.S. counterpart.
Poland’s zloty depreciated to a one-month low as the European Union and Cyprus struggled to find a solution to the financial crisis in the Mediterranean island.
The currency declined for the fourth straight day, dropping 0.5 percent to 4.1945 per euro.
A composite index based on a survey of purchasing managers in the euro-region services and manufacturing industries fell to 46.5 from 47.9 in February, London-based Markit Economics said today. Analysts had forecast a reading of 48.2, according to the median of 23 estimates in a Bloomberg survey. A reading below 50 indicates contraction.
The ECB has kept its benchmark interest-rate unchanged at 0.75 percent since July 2012. Following the PMI figures, JPMorgan Chase & Co. economist Greg Fuzesi said the company cut its 2013 euro-area economic growth forecast to a 0.6 percent annual contraction from a 0.2 percent decline and is “penciling” in a June borrowing-cost reduction by the central bank.
A similar gauge based on purchasing managers in Germany’s manufacturing industry unexpectedly fell to 48.9 this month from 50.3 in February.
“The weaker PMIs, in particular the weaker German one, it elevates European Central Bank easing risk,” Richard Franulovich, chief currency strategist at Westpac Banking Corp. in New York, said in a telephone interview. “That’s a very powerful euro-negative story.”
S&P lowered Cyprus’s long-term sovereign credit rating to CCC from CCC+ with a negative outlook. The ratings company cited the rising risk of a “disorderly credit event” in absence of a credible source of capital-fiscal financing.
The Cypriot parliament this week rejected a proposed levy on bank deposits to raise 5.8 billion euros, which euro-area finance ministers backed as a condition for the country’s bailout. A bank holiday in Cyprus has been extended to March 25, giving policy makers until Monday to find a compromise to prevent a collapse of the country’s banks. Russia rebuffed Cyprus’s request for a bailout loan.
Euro-area finance chiefs, pressuring Cyprus to shrink its banking system as the condition for a bailout, are reviving demands they jettisoned last week as too extreme, four European officials said.
The euro has lost 1.4 percent in the past month according to Bloomberg Correlation-Weighted Indexes which track the currencies of 10 developed nations. The dollar strengthened 1.1 percent, the indexes show.
The yen has fallen 6.7 percent in 2013, according to the indexes, amid speculation new BOJ leadership would heed Prime Minister Shinzo Abe’s call for additional easing. Kuroda said today he plans to pursue bold easing in quality and quantity.
Japan’s currency may decline to its weakest level in almost four years versus its U.S. counterpart in the second quarter if a key support level fails to hold, according to Credit Suisse AG. It will face a test at the 96.71 level and may depreciate to 100, its lowest level since April 2009, if it breaches that support level, according to David Sneddon, a technical analyst at Credit Suisse in London.
New Zealand’s dollar climbed after the statistics bureau said gross domestic product increased 1.5 percent in the three months ended Dec. 31 from the previous quarter, when it expanded 0.2 percent. Growth exceeded all of the estimates in a Bloomberg survey of economists and was almost twice the central bank’s 0.8 percent forecast.
“It looks like buoyant economic activity in New Zealand will be sustained,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington.
The so-called kiwi advanced 1.1 percent to 83.16 U.S. cents, touching the strongest level since March 6.