Relief following a rescue for Cyprus lasted just hours for the euro after an official close to the bailout deal unexpectedly warned that the framework could be used again in the future. The euro plunged to fresh November 2012 lows as eurozone troubles allowed sterling to maintain its recent upswing with the pound re-entering the frame as a safer currency than the euro. Sterling rose to six-week highs against the single currency and could maintain those levels following UK retail sales data. The US dollar may also hold multi-month highs against its European counterpart as Cyprus prepares to reopen its banking sector, although US consumer confidence data should also raise question marks about the greenback. Japan’s new central bank Governor issued more promises of a heavy-hand approach to monetary stimulus ahead of next week’s Bank of Japan meeting, weighing on the yen.
Sterling
The pound rose to a six-week high against the euro in front of data that is expected to support hopes the British economy will return to growth in the first quarter as a banking crisis in Cyprus threatens to intensify economic recession in the eurozone. The Confederation of British Industry will publish its distributive trades survey for March; a positive outcome should reinforce cautious optimism that Britain will escape another recession this year, allowing the pound to continue appealing to investors worried about recent developments in Europe.
US dollar
US consumer confidence data is expected to highlight nervousness among individuals connected to Washington’s ongoing budget battles; a factor that may keep the US Federal Reserve locked into its programme of monthly asset purchases for the long-term which debases the US dollar. However, the data is unlikely to unsettle the US currency’s broad underpinning from demand for safety.
Euro
The euro fell to its lowest point since November 22 against the US dollar and could remain under stress after the chairman of the euro group who helped administer bailout negotiations for Cyprus unexpectedly told markets that the Cypriot programme could be used elsewhere. Investors have been under pressure to sell the euro after Cyprus agreed to use savings at banks to help rescue the country from bankruptcy, sparking fears of bank runs in Cyprus and in any country that seeks financial help in the future. Although Cyprus agreed to limit losses on individual savings accounts after securing a revised rescue package from international lenders over the weekend, savings over the €100,000 insurance threshold will still shoulder part of the country’s controversial bailout deal.