Reuters: US Dollar Report: FOREX-Cyprus rescue terms keep euro weak versus dollar

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FOREX-Cyprus rescue terms keep euro weak versus dollar Mar 26th 2013, 12:35 Tue Mar 26, 2013 8:35am EDT * Euro trades near four-month low against dollar * Worries grow over Cyprus deal fallout * Euro hits multi-month low versus growth-linked currencies * Sellers to emerge on any euro rebounds By Jessica Mortimer LONDON, March 26 (Reuters) - The euro stayed close to a four-month low against the dollar on Tuesday on concern that a plan for uninsured depositors to contribute to a Cyprus rescue could be employed in future euro zone bailouts. The euro held steady at $1.2851, just above Monday's low of $1.2829, its lowest since Nov. 22. But traders said it was vulnerable to further falls and it hit multi-month lows against the Australian and New Zealand dollars. Adding to investors' concerns, the European Commission said on Tuesday that it might be possible for large uninsured depositors to be "bailed-in" as part of the future resolution of a bank under a new draft EU law. Traders said they remained sellers of euros on any rebound and a break below that level could leave it vulnerable to a drop towards $1.27 and beyond. Large option expiries were reported at $1.2750. The euro slid on Monday after the head of the Eurogroup, Jeroen Dijsselbloem, said the Cyprus rescue plan would serve as a model for dealing with future banking crises. "The euro came off on the Cyprus news yesterday, particularly after the Eurogroup head comments. But he later appeared to retract it and that has helped the euro stabilise," said Geoff Kendrick, currency strategist at Nomura. The deal for Cyprus involves raiding deposits above 100,000 euros in two of Cyprus' largest banks, which are not guaranteed. "They seem to be putting the emphasis onto investors rather than tax-payers," said Ian Stannard, head of European FX strategy at Morgan Stanley. "That is going to keep the euro under pressure as it could well deter foreign investors from returning to peripheral European assets," he said, adding that he expected the euro to test the $1.27-$1.2660 level in the coming days. Kendrick said with global shares holding up and investors not too concerned about the economic outlook in Asia and the United States the euro was particularly vulnerable against growth-linked currencies. The euro hit its lowest in two months against the Canadian dollar, four months against the Australian dollar and seven months versus the New Zealand dollar . A bleak euro zone economic outlook and political uncertainty in Italy were expected to keep the euro pinned towards its lows. BOJ IN FOCUS The yen edged lower as on the prospect of aggressive Bank of Japan monetary easing at a policy meeting next week, which could put the Japanese currency under pressure. Earlier, the new BOJ Governor, Haruhiko Kuroda, reaffirmed his commitment to bold monetary easing to achieve 2 percent inflation. Falls in the yen, which tends to rise in times of financial market stress, were limited, however, due to worries over Cyprus and the broader euro zone. The dollar was up 0.1 percent at 94.26 yen, though it remained some way off a 3-1/2-year high of 96.71 yen hit on March 12. The euro was also up 0.1 percent at 121.08 yen , staying above Monday's one-month low of 120.08 yen. Analysts also said that with market players already expecting drastic measures at the April 3-4 BOJ meeting, the yen could rebound if policymakers fail to produce a decision that matches those expectations. Link this Share this Digg this Email Reprints

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