Forex Market Update: Euro Climbs After Cyprus Bailout Deal
The euro soared against all major traded currencies on Monday after the Cypriot government reached a last-minute bailout deal with the Troika (the European Central Bank, European Union and the International Monetary fund) on Monday, averting possible banking sector collapse in the island nation.
Earlier on Monday, the Cypriot government agreed to restructure its overstretched banking system by winding down its second largest bank, the Popular Bank of Cyprus, also known as Laiki. All deposits below euro 100 will be shifted to the bank of Cyprus, while unsecured deposits above euro 100,000 will be taxed, generating euro 4.2 billion. In return, the troika will provide euro 10 billion in financial assistance.
During the Asian trading hours on Monday, the single currency of the 17-nation monetary union climbed as high as $1.3050 from $1.2989 late Friday in New York, according to EBS. According to the Wall Street Journal the euro traded at $1.3037 as of 0450 GMT.
The euro soared against the yen 123.85 in Asian trading hours from 122.75 on late Friday. By afternoon, it traded at yen 123.70.
The euro was under constant pressure last week after the Cypriot parliament downrightly rejected the EU’s proposal of taxing all deposits by flat rate of 9.9%. Later, The ECB’s warning that it will stop financial aid to Cyprus should it fails to reach a deal by Monday, fanned fears of possible financial system meltdown in Cyprus (in case no deal is made).
Still, experts are not convinced that euro zone is completely out of woods.
Speaking to the Wall Street Journal, Shuichi Kanehira, head of FX spot trading at Mizuho Corporate Bank said, “Not everything is rosy even though there is now a deal over Cyprus. There are still concerns over Italy and euro-zone fundamentals that could weigh on the euro.”