FOREX-Euro rebounds as investors optimistic about Cyprus deal
* Deal reached to spin off Greek units of Cypriot banks * Euro gains limited by risk of Cyprus banking collapse * Weaker-than-expected German Ifo index weighs on euro By Gertrude Chavez-Dreyfuss NEW YORK, March 22 (Reuters) - The euro rose broadly on Friday on optimism Cyprus will be able to cobble together a last-minute deal that will avert a financial meltdown before a Monday deadline. Europe's shared currency was on track for its best weekly performance against the dollar in about seven weeks. The EU has given Cyprus until Monday to raise the 5.8 billion euros it needs to secure a 10 billion euro international lifeline. Without a deal, the European Central Bank will cut funds to Cypriot banks. On Friday, however, Cyprus moved a step closer to raising those funds by agreeing to spin off Greek units of debt-ridden Cypriot banks. The Cypriot presidency said the deal had been settled with favourable terms for Cyprus. Also the deputy leader of Cyprus' ruling party said a bailout solution within the terms set by the European Union may be possible in the "next few hours.". That pushed the euro to one-week highs against the dollar. There's still a long way to go, however. Cyprus's talks with Russia ended without a positive outcome just yet, but the troubled euro zone government said it has other proposals on the table. "Some combination of lower levies on deposits, Russian forbearance and fiscal commitments by the Cyprus government remains the most likely outcome," said Steven Englander, global head of G10 strategy at CitFX in New York. "The resolution should give the euro a little pop, but the pop is unlikely to be big or permanent. The negative impact will be felt more powerfully down the road when the next crisis approaches." In midday New York trading, the euro rose 0.7 percent on the day to $1.2986, with traders citing buying by a UK bank. It hit a four-month low of $1.2843 earlier in the week after Cyprus rejected the terms of a proposed European Union bailout. Strategists, however, said the single currency could struggle to break above $1.30 and would remain vulnerable to developments in Cyprus and the risk of contagion to other euro zone countries. Nonetheless, market participants don't seem to be panicking. "It looks like the euro can weather this latest storm, but beyond that, it's going to be a slow drag," said Brian Kim, currency strategist at RBS Securities in Stamford, Connecticut. RBS' outlook on the euro remained bearish given the euro zone's economic underperformance vis-à-vis the United States, said Kim. Traders expect the euro increasingly to reflect the emerging risks to the euro zone. While the European Central Bank has tools in place to prevent contagion, an exit by Cyprus would still sour sentiment towards European assets. GERMAN IFO DISAPPOINTS Earlier in the session the euro hit a two-week low of 121.44 yen after Germany's Ifo survey of business morale fell short of expectations.. It later recovered and was last trading up 0.3 percent on the day at 122.81 yen. Asian investors were cited as buyers of short-dated options, betting on drops to 121 and 120.50 yen. The dollar was down 0.5 percent against the yen at 94.43 yen , having earlier fallen to 94.195 yen. The highly-liquid Japanese currency tends to be bought during times of economic uncertainty and heightened financial market stress. The yen has risen against the dollar for a second straight week. On Thursday the dollar shed about 1.2 percent as investors covered their negative yen bets after new Bank of Japan Governor Haruhiko Kuroda came out less dovish than many had expected. Gains in the euro saw the dollar index fall 0.5 percent to 82.368, retreating further from last week's seven-month high of 83.166.
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