Euro tumbles to 4-month low on concerns over Cyprus banking sector
Despite briefly rising to session highs after the last minute deal between Cyprus and the troika, the single currency tumbled to a fresh 4-month low as initial enthusiasm on the eleventh-hour deal waned and investors worried about its impact on the euro zone banking sectors.
The deal for Cyprus, which was endorsed by eurozone finance ministers, includes plans to shut down Popular Bank of Cyprus in return for a 10 billion euros bailout.
Although the single currency opened lower and dropped to 1.2944 in New Zealand, price jumped on news that a deal has been struck between Cyprus and the troika, eventually rising to session high at 1.3048 ahead of Tokyo open. However, euro came under selling pressure at European open as initial enthusiasm surrounding the Cyprus deal faded and the pair fell to 1.2984 before tumbling below last week's 3-month low at 1.2844 to a fresh 4-month low at 1.2830 at New York midday, due partly to comments by Dutch Finance Minister Jeroen Dijsselbloem. Later, euro pared intra-day losses and recovered to 1.2880 in New York afternoon.
Later in the day, Dijsselbloem said 'Cyprus bank restructuring plan should be seen as template for rest of eurozone; eurozone countries with large banking sectors must look to restructure, reduce overall size; aim is to shift risks away fm public sector, if uninsured depositors need to be 'bailed-in', they will be.'
Versus the Japanese yen, although the greenback rose to session high at 94.96 at Tokyo open (due to rally in EUR/JPY), price retreated to 94.59 in early European morning. Dollar briefly rebounded to 94.93 at New York midday before tumbling below last Monday's 94.07 low to 93.54. However, price pared intra-day losses and staged a swift rebound to around 94.20 ahead of New York close.
The British pound tracked euro's intra-day movements in a subdued manner, price briefly rose to session high at 1.5261 ahead of Tokyo open before tumbling to an intra-day low at 1.5143 in New York afternoon. Cable pared intra-day losses and rebounded to 1.5196 before stabilising.
In other news, German Chancellor Angela Merkel said 'very pleased that solution for Cyprus found n bankruptcy averted; believes outcome is the right one, those that caused Cyprus crisis are being asked to pay.' The ECB said 'Governing Council decided not to object to request for provision of emergency liquidity assistance by the Central bank of Cyprus; will continue to monitor the situation closely.'
Data to be released on Tuesday:
New Zealand's trade balance, UK CBI distributive trades, U.S. durable goods, redbook retail sales, consumer confidence and new home sales.