BLBG:Euro Climbs as ECB Buys Cyprus Time to Renegotiate; Pound Rises
The euro strengthened for the first time in three days against the dollar on speculation the European Central Bank’s pledge to provide liquidity to Cyprus will give it time to renegotiate a financial rescue package.
Europe’s shared currency snapped a seven-day slide versus the Swiss franc as the ECB yesterday reaffirmed its commitment to offer funding to Cyprus “within the existing rules,” after Cypriot lawmakers rejected a levy on bank deposits. The Dollar Index fell before the Federal Reserve announces its policy decision at the end of a two-day meeting. The pound rose against the dollar after the Bank of England minutes showed Governor Mervyn King was outvoted in a bid to expand stimulus.
“The ECB statement that they are going to provide more liquidity means there is some time for renegotiation for Cyprus, so that’s a positive,” said Lutz Karpowitz, a senior foreign- exchange strategist at Commerzbank AG in Frankfurt. “As long as there is still some room for further negotiations, the market is relatively relaxed. If there is more and more impression that there won’t be a solution, then there may be more weakness in the euro.”
The euro appreciated 0.2 percent to $1.2911 at 9:42 a.m. London time after falling 1.5 percent during the previous two days. The common currency gained 0.2 percent to 1.2223 francs and climbed 0.4 percent to 123.06 yen. The yen weakened 0.2 percent to 95.31 per dollar.
New Package
Cyprus is the fifth euro-zone country to seek a bailout since 2010 to avoid a collapse of its financial system. Luxembourg Finance Minister Luc Frieden yesterday called for the 17 euro-area finance ministers to reconvene “as soon as possible” to put together a new package for the nation.
The euro may weaken to $1.25 if no solution is found, Commerzbank’s Karpowitz said. The currency last traded at that level in August.
Europe will find a resolution on Cyprus, said Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest asset manager.
“It’s not a really major economic issue,” Fink said in a Bloomberg Television interview in Hong Kong. “It’s a $10 billion issue. It does remind us of the frailty of Europe. It does remind us that the European fix will be multiple years.”
The euro has dropped 1.5 percent during the past month, the second-worst performer after Norway’s krone among 10 developed- market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen fell 0.4 percent and the dollar strengthened 1.7 percent.
Fed Decision
The U.S. Federal Open Market Committee will issue a statement and economic forecasts after the end of its two-day meeting today in Washington. Fed Chairman Ben S. Bernanke will then brief reporters.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trade partners, dropped 0.2 percent to 82.827.
The pound reversed an earlier decline against the dollar after minutes of the Bank of England’s March 6-7 meeting showed policy makers voted 6-3 to keep the target for asset purchases at 375 billion pounds.
Chancellor of the Exchequer George Osborne releases the U.K. budget for the fiscal year ending March 2014 at 12:30 p.m. in London.
The pound rose 0.2 percent to $1.5128 after declining as much as 0.5 percent.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
