The US dollar and safe haven buying is driving currency market trade after eurozone officials ended last week’s summit with an unexpected move on Cyprus, with the Government ordering to swipe individual savings accounts to help form part of its wider bailout package. The euro plunged in Asian markets, with developments in Cyprus perhaps providing a wake-up call for euro-heavy traders who have been feeling confident about Europe putting an end to its sovereign debt crisis this year. Cyprus will vote on the bailout proposal but the euro area’s latest debt woes have helped the US dollar shrug off its disappointing end to last week. Worries of aggressive monetary easing to come in Japan have been put to one side for now with the crisis in Cyprus also bolstering demand for the Japanese yen. Debt risks in Europe have also helped sterling extend last week’s remarkable turnaround which came after Bank of England Governor Mervyn King attempted to put a floor underneath recent pound selling.

Sterling

The British pound produced a remarkable turnaround against the US dollar last week after Governor Mervyn King changed course on currency guidance and said the Bank of England was not looking for a weaker pound. Sterling has also shot higher against the euro and other European rivals after bailout proposals for Cyprus led to a run on banks in the country and panic selling of the single currency.

US dollar

The safe haven US dollar has made a strong start to the week after a planned bailout for Cyprus hit the euro in Asian markets, with investors deeply concerned that euro area officials are laying foundations of a dangerous bailout framework in Europe. The US dollar’s record-breaking advance since early February had fizzled towards the end of last week as investors became anxious that they may have pushed views of tighter US monetary policy too far too soon.

Euro

The latest European summit caught markets by complete surprise after officials agreed to an extraordinary bailout for Cyprus that will include a one-off hit on people’s savings account, a type of tax that will form part of the country’s rescue deal. The euro tumbled across the board with investors fretting that eurozone leaders have just laid the foundations for a very dangerous bailout framework, one that could potentially lead to a premature run on banks in any country that may consider a bailout like Spain did in 2012. Although it may be too early for markets to consider talk of another debt crisis, there are fewer reasons for traders to feel confident about the euro.

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