BS: Euro Rises as Cyprus Seeks Alternatives to EU Plan
The euro rose the most in five days as Cyprus sought alternatives to the European Union plan to help the nation avoid a banking collapse.
The 17-nation currency strengthened from a four-month low against the dollar after the European Central Bank’s pledge to provide liquidity to Cyprus gave the nation time to renegotiate a financial rescue and on speculation that Russian investors may buy Cyprus Popular Bank. The Dollar Index (DXY) fell as demand for safety waned and investors awaited the Federal Reserve’s policy decision.
“That’s what’s moving the euro at the moment,” Fabian Eliasson, vice president of corporate foreign-exchange sales at Mizuho Financial Group Inc. in New York, said of the Russian- investor speculation. “The market is looking for some kind of a resolution to this issue.”
The euro advanced 0.5 percent to $1.2946 at 8:46 a.m. New York time, after sliding to $1.2844 yesterday, the weakest level since Nov. 22. The common currency strengthened 0.9 percent to 123.73 yen. The yen weakened 0.5 percent to 95.61 per dollar.
The European Union stands ready to facilitate solutions on Cyprus, the group said today in a statement. 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 island nation.
ECB Move
“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.”
Europe will find a resolution for Cyprus, said Laurence D. Fink, chief executive officer of BlackRock Inc. (BLK), the world’s largest (BLK) 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 may weaken to $1.25, the lowest since August, if no solution for Cyprus is found, Commerzbank’s Karpowitz said.
Market Measure
The euro has dropped 1.2 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 weakened 0.7 percent and the dollar strengthened 1.7 percent.
The Dollar Index fell for the first time in three days before the Federal Open Market Committee issues a statement and economic forecasts at the end of its two-day meeting today. Fed Chairman Ben S. Bernanke will later brief reporters.
“The Fed is likely to recognize that the recent string of economic data has been encouraging,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, wrote in a note to clients. “In other regards, we don’t expect substantial changes in the statement.”
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 82.813.
Pound Gains
The pound reversed an earlier decline against the dollar after minutes of the Bank of England’s March 6-7 meeting showed a majority of policy makers said more bond purchases may erode their credibility.
Sterling pared its drop versus the euro as the minutes revealed most of the nine-member Monetary Policy Committee said more quantitative easing “might also lead to an unwarranted depreciation of sterling.”
“The comments were more of a surprise than the actual vote,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. “It’s the first time we’ve seen verbal intervention in support of sterling in the past few years. This could be a nail in the coffin for further quantitative easing.”
The pound fell 0.1 percent to $1.5082 after weakening as much as 0.5 percent.
China’s yuan rose to a 19-year high against the dollar after the central bank set the currency’s reference rate at the strongest level since Jan. 15 amid U.S. Treasury Secretary Jacob L. Lew’s visit to Beijing for talks.
The yuan appreciated to 6.2113, the strongest level since the government unified the official and market rates at the end of 1993. China limits the currency’s movement to 1 percent on either side of the daily fixing.
To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
