Euro extends losses on Cyprus uncertainty

Published: 20 Mar at 9 AM Tags: Euro, Dollar,

The euro is likely to extend recent losses as the future of the single currency is once again called into question by the economic problems in Cyprus. The island country’s parliament has voted against a levy on bank deposits that was needed as a condition for a bailout.

The euro fell 0.5 per cent to $1.2894 having previously hit a low of $1.2843. However, losses were trimmed following the negative vote on a bailout after the European Central Bank confirmed that it would be approaching EU partners and the International Monetary Fund and would provide liquidity to Cypriot banks within existing rules.

The shock announcement at the weekend that Cyprus intended to tax the savings of its citizens ignited fears that there might be a run on the banks. There has also been some speculation that larger struggling countries such as Italy and Spain might follow the example as a way of raising financial aid.

The uncertainty in the eurozone has been good for safe haven currencies like the yen and the US dollar. Sterling, also perceived as a shelter, has been given a slight boost as the euro suffers.

Although the yen was up against both the euro and the dollar, it is probable that the Japanese currency will come under pressure after Haruhiko Kuroda takes up his position as governor of the Bank of Japan and begins introducing more aggressive monetary policy.