Euro Recovers From Near 4-month Low After Cyprus No Vote

19/03/2013 21:50GMT

Euro recovers from a near 4-month low after Cyprus no vote

The single currency recovered from a fresh 4-month low versus the dollar after lawmakers in Cyprus overwhelmingly rejected a deeply unpopular tax on bank deposits, reducing concerns that a controversial bailout deal for Cyprus could destabilize financial markets in the euro zone.

In earlier trading, the single currency continued to remain under pressure in Asia and dropped briefly to 1.2916 in European morning before recovering to 1.2961 ahead of New York open, helped by the release of better-than-expected German ZEW data. However, euro met renewed selling there and tumbled to a near 4-month low at 1.2844 in New York afternoon as investors nervously awaited the outcome of the Cyprus vote. Later, euro recovered from said session low at 1.2844 and spiked up to 1.2923 following reports that the government in Cyprus was preparing a new deposit tax proposal to lessen the impact on smaller depositors.

The British pound traded sideways in Asia and briefly dropped to an intra-day low at 1.5073 in European morning. Cable pared intra-day losses and rebounded after the release of U.K. inflation data and eventually hit session high at 1.5145 ahead of New York opening. Later, the pair retreated again in tandem with euro to 1.5077 but failure to penetrate previous 1.5072 low triggered short covering and price recovered to 1.5137 in New York afternoon before stabilising.

Versus the Japanese yen, the greenback briefly rose to session high at 95.75 in Asian morning before falling to 95.23 in European morning on risk aversion. Despite a brief recovery to 95.50 ahead of New York open, renewed concerns over Cyprus triggered broad-based buying of the yen and price tumbled to an intra-day low at 94.72 in New York afternoon before stabilising.

On the data front, German ZEW survey for expectations rises to a near 3-year high, reported at 48.5, higher than expectations for 48.0 and higher than 48.2 in February. UK CPI rose at a 0.7% month-on-month (2.8% year-on-year) rate of change during the month of February, as expected by the consensus of economists.

News worth noting: German FinMin Wolfgang Schaeuble says 'Germany regrets Cyprus decision; creditors have to be involved when there is an insolvency; euro zone is much more stable than previously; it's a "serious situation"; no one except Cyprus is to blame for its current situation; Cyprus government thinks with its decision it can attract large investors to Cyprus in future; Cyprus's "business model" doesn't work any more, rating agency have downgraded to junk level; 2 large Cyprus banks are essentially insolvent with help; he thinks Cyprus must act quickly, there isn't enough time to wait until June.'

Economic data to be released on Wednesday :

New Zealand Current account, Australia Westpac leading economic index, Germany PPI, EU Current account (euro), U.K. minutes of Mar 7 MPC vote, Claimant count, ILO unemployment rate, Avg. earnings, Chancellor of Exchequer George Osborne will unveil 2013 U.K. budget, Swiss ZEW index, EU Consumer confidence, U.S. Fed rate decision.