Reuters: US Dollar Report: FOREX-Euro rises, bank deal soothes some Cyprus anxiety

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FOREX-Euro rises, bank deal soothes some Cyprus anxiety Mar 22nd 2013, 11:59 Fri Mar 22, 2013 7:59am EDT * Deal reached to spin off Greek units of Cypriot banks * Euro gains limited by risk of Cyprus banking collapse * Weaker-than-expected German Ifo index weighs on euro By Nia Williams LONDON, March 22 (Reuters) - The euro rose on Friday after Cyprus agreed to spin off Greek units of debt-ridden Cypriot banks, removing one source of uncertainty as the island scrambled to avoid financial meltdown. The Cypriot presidency said the deal had been settled with favourable terms for Cyprus. The euro rose 0.4 percent on the day to $1.2949, with traders citing buying by a UK bank. It hit a four-month low of $1.28435 earlier in the week after Cyprus rejected the terms of a proposed European Union bailout. Despite its gains, strategists said the single currency could struggle to break above $1.30 and would remain vulnerable to developments in Cyprus and the risk of contagion to other euro zone countries. The EU has given Cyprus until Monday to raise the 5.8 billion euros its needs to secure a 10 billion euro international lifeline. Without a deal, the European Central Bank will cut funds to Cypriot banks. This could see it become the first euro zone member state to exit the currency bloc. Nonetheless, moves in the euro did not suggest investors were panicking. "There's a lot of competing noise from the headlines. The market has been relatively constrained but if we were talking about a bigger country it would be a lot more volatile," said Simon Smith, currency economist at FxPro. "The euro has priced in a fair amount of bad news already and there's still some underlying hope they will stitch something together. But even if we do see Cyprus remain within the euro zone it's not going to be a massive positive for the euro." Smith said he expected the euro to grind lower towards $1.24-$1.25 over the next three months. Traders expect the euro increasingly to reflect the emerging risks to the euro zone. While the European Central Bank has tools in place to prevent contagion, an exit by Cyprus would still sour sentiment towards European assets. IFO DISAPPOINTS Earlier in the session the euro hit a two-week low of 121.44 yen after Germany's Ifo survey of business morale fell short of expectations.. It later recovered and was last trading up 0.3 percent on the day at 122.73 yen. Asian investors were cited as buyers of short-dated options betting on drops to 121 and 120.50 yen. "The euro remains a sell on rallies to us," said Paul Robson, senior currency strategist, at RBS. "Even if there is a deal on Cyprus, the economic data coming out of the euro zone suggests more monetary policy easing. And if there is no deal on Cyprus, it will prove pretty hard for risk assets." The dollar was down 0.2 percent to 94.75 yen, having earlier fallen to 94.195 yen. The highly liquid Japanese currency tends to be bought during times of economic uncertainty and heightened financial market stress. On Thursday the dollar shed about 1.2 percent as investors covered their negative yen bets after new Bank of Japan Governor Haruhiko Kuroda stopped short of calling an emergency policy meeting before the central bank's next scheduled review on April 3-4. Gains in the euro saw the dollar index dip 0.2 percent to 82.562, retreating further from last week's seven-month high of 83.166. Link this Share this Digg this Email Reprints

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