BLBG:Euro Slides Most in 14 Months as Cyprus Roils Markets
The euro fell the most in 14 months against the dollar after an unprecedented levy on bank deposits in Cyprus threatened to throw Europe back into crisis.
The 17-nation euro declined by the most in three weeks against the yen as investors sought haven assets after Cypriot President Nicos Anastasiades bowed to demands by euro-area finance ministers to raise 5.8 billion euros ($7.48 billion) by taking a piece of every bank account in Cyprus. The yen strengthened against all its 16 major counterparts after Anastasiades delayed a vote on the measure in parliament until today. The Australian and New Zealand dollars weakened against the U.S. currency.
“The concern is that this bailout plan was forced upon deposit holders, taxing them and therefore an involuntary support for the bailout,” said Imre Speizer, a strategist at Westpac Banking Corp. (WBC) in Auckland. “If this is a template for future bailouts then that’s worrying for any of the larger countries if they have to go down this route. It isn’t affecting only the euro, it’s affecting risk appetite in general.”
The euro slid 1.3 percent to $1.2913 at 7:50 a.m. in London after dropping as much as 1.5 percent, the biggest decline since Jan. 13, 2012. The common currency dropped 1.8 percent to 122.36 yen after sliding as much as 2.8 percent, the most since Feb. 25. The yen gained 0.6 percent to 94.72 per dollar.
Scenes of Cypriots lining up at cash machines raised the specter of capital flight elsewhere and threatened to disrupt a market calm that settled over the 17-member currency bloc since the European Central Bank’s pledge in September to backstop troubled nations’ debt.
‘Credit Negative’
The terms of Cyprus’s bailout are negative for depositors across Europe, and may hurt bank ratings region-wide, Moody’s Investors Service said in a Credit Outlook report today.
“There’s concerns about the dangerous precedent that this sets in terms of other so-called depositors guarantees,” said Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore “It’s the de-facto break-up of the euro in the fact that having money in a Cyprus bank isn’t worth as much as having money in any other bank.”
European Union Economic and Monetary Commissioner Olli Rehn said in a March 16 interview there won’t be a repeat of the tax on bank deposits.
“The issue is whether to believe that the Cyprus levy on depositors is one-off, but depositors and investors elsewhere could easily see this as another in a string of ‘one-offs’ and react badly,” Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York, wrote in a note to clients. The developments will lead to selling of the euro against a range of currencies including the dollar, Swiss franc and pound, he wrote.
The euro has weakened 1.5 percent during the past month, according to Bloomberg correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar gained 2.2 percent and the yen rose 1.2 percent.
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net;
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
