Euro falls most in 14 months as Cyprus turmoil adds debt concern

‘Dangerous Precedent’

“There’s concerns about the dangerous precedent that this sets in terms of other so-called depositors guarantees,” said Annette Beacher, head of Asia-Pacific research at TD Securities Inc. in Singapore. “It’s the defacto break-up of the euro in the fact that having money in a Cyprus bank isn’t worth as much as having money in any other bank.”

The euro trimmed declines as the impact of developments in Cyprus had relatively limited impact on short-maturity Italian and Spanish bonds, said Arne Rasmussen, head of currency research at Danske Bank A/S in Copenhagen.

Italy’s 10-year bond yield increased three basis points to 4.63% after rising as much as 21 basis points. Spain’s 10-year securities climbed five basis points to 4.97%.

“The issue is whether to believe that the Cyprus levy on depositors is one-off, but depositors and investors elsewhere could easily see this as another in a string of ‘one-offs’ and react badly,” Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York, wrote in a note to clients. The euro will be sold against a range of currencies including the dollar, Swiss franc and pound, he wrote.

The 17-nation euro tumbled 0.9% to 85.70 pence and dropped 0.2% to 1.2245 francs.

Market Measure

The euro has weakened 1.4% during the past month, the second worst performer after Norway’s krone of 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. It has still strengthened 2.2% in the previous six months.

The JPMorgan Chase & Co. G7 Volatility Index, based on three-month options on Group of Seven nations’ currencies, reached 9.4%, the highest level since March 4.

Mexico’s peso gained versus most of its major peers after Deputy Finance Minister Fernando Aportela said the country isn’t planning measures to curb the currency’s advance in the wake of the central bank’s first benchmark rate cut since 2009. It was little changed at 12.4337 per dollar, after gaining as much as 0.3%.

The Hungarian forint fell to a 14 month-low against the euro as concern Europe’s debt crisis will escalate added to the turmoil caused by the government’s plan to cut borrowing costs. The forint slid 1.9% last week as Prime Minister Viktor Orban called for lower interest rates and for measures to help foreign-currency borrowers.

The currency dropped 0.3% to 306.26 per euro after sliding to the weakest level since Jan. 18, 2012.

Bloomberg News

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