BLBG:Euro Falls Most in 14 Months on Cyprus Turmoil; Yen Strengthens
The euro slid 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 single currency fell to a two-week low versus the yen after Cypriot President Nicos Anastasiades bowed to demands by regional finance ministers to raise 5.8 billion euros ($7.48 billion) by imposing losses on the island’s depositors. The yen strengthened against all 16 of its major peers. The New Zealand dollar and Mexican peso weakened as investors sold higher- yielding currencies. The euro pared losses as declines in Italian and Spanish government bonds were limited.
“The measure makes people nervous that this may happen to other countries in the future and there could be a flight of capital out of the region,” said Mansoor Mohi-uddin, head of currency strategy at UBS AG in Singapore. “This adds to our bearish view on the euro, and we expect the currency’s downtrend to begin again.”
The euro slid 1 percent to $1.2945 at 7:54 a.m. in New York after dropping as much as 1.5 percent, the biggest decline since Jan. 13, 2012. The common currency slumped 1.3 percent to 123.01 yen after falling to 121.15, the weakest level since March 5. The yen gained 0.3 percent to 95.03 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. A lawmaker said a parliamentary vote on the deposit levy scheduled for today had been postponed.
‘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.”
The euro trimmed declines as the impact of developments in Cyprus had relatively limited impact on short-maturity Italian and Spanish bonds, said Arne Rasmussen, head of currency research at Danske Bank A/S in Copenhagen.
‘Fairly Small’
“There’s buying on dips after the euro’s significant move and some people are taking a wait-and-see stance ahead of the parliamentary vote,” Rasmussen said. “Cyprus is a major concern in our view but I think the near-term recovery of the euro was driven by the fact that losses in Italian and Spanish debt were fairly small.”
Italy’s 10-year bond yield increased eight basis points to 4.67 percent after rising as much as 21 basis points. Spain’s climbed 10 basis points to 5.02 percent.
The euro has weakened 1.3 percent during the past month, the second worst performer after Norway’s krone of 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. It has still strengthened 2.3 percent in the previous six months.
“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 euro will be sold against a range of currencies including the dollar, Swiss franc and pound, he wrote.
The 17-nation euro tumbled 0.9 percent to 85.72 pence and dropped 0.3 percent to 1.2238 francs.
Kiwi Weakens
The New Zealand currency fell 0.5 percent to 82.35 cents, the Mexican peso dropped 0.3 percent to 12.4691 per dollar and the Australian dollar declined 0.2 percent to $1.0387.
The concern in Cyprus “moves risk-on trade to backseat,” Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, wrote on Twitter. “Sell euro as well,” he said.
The Hungarian forint fell to a 14 month-low against the euro as concern Europe’s debt crisis will escalate added to the turmoil caused by the government’s plan to cut borrowing costs.
The forint slid 1.9 percent last week as Prime Minister Viktor Orban called for lower interest rates and for measures to help foreign-currency borrowers.
The currency dropped 0.7 percent to 307.47 per euro after sliding to 308.65, the weakest level since Jan. 18, 2012.
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
