* Euro unable to shake Cyprus uncertainty
* Yen gets safety bid, trading thinned by Japan holiday
* British budget, Fed meeting and Bernanke presser all ahead
By Wayne Cole
SYDNEY, March 20 The euro was pinned near
four-month lows against the U.S. dollar in Asia on Wednesday
after Cyprus' rejection of bailout terms seemed to threaten
default or even expulsion from the euro zone.
The general assumption in markets is that the European
Union, as so often before, will hash out a last minute deal that
keeps Cyprus in the single currency. See
"The wider implications for the Eurozone were Cyprus to
leave are really quite far reaching and it would make sense to
see if some form of compromise deal can be reached," said Brian
Martin, a senior strategist for ANZ in London.
"However, we cannot read this outcome as anything but
negative for the euro," he added. "We recommend staying short
the euro vs JPY, CHF, GBP and USD. Peripheral bond spreads
should widen further as fears over contagion grow, particularly
The euro was indeed looking unloved at $1.2862,
having been as low as $1.2843 overnight after breaking key
support around $1.2870, its 200-day moving average.
Further losses were prevented only after the European
Central Bank said it was committed to providing liquidity to
Cypriot banks within certain limits.
All this uncertainty kept the yen supported in its
traditional role as a safe haven. The euro was off at 122.27 yen
, while the dollar was a shade softer at 95.07.
Yet market will also be wary of any comments from Haruhiko
Kuroda, who becomes governor of the Bank of Japan on Wednesday.
Expectations are high that Kuroda will quickly embark on a much
more aggressive monetary policy to fight deflation, perhaps even
before the next scheduled policy meeting in early April.
Japanese markets are shut for a holiday on Wednesday but
there is talk Kuroda could call a special policy meeting for
The euro even fell against the ailing pound, hitting a
five-week low near 85 pence. It was last at 85.21 with
major support a long way down at the February trough of 84.44.
Still, sterling itself may come under pressure later in the
day as the British government delivers its budget. There is much
talk Chancellor George Osborne could soften the Bank of
England's inflation-fighting remit in order to spur growth.
The prospect of yet more asset buying by the BoE could see
sterling resume its decline, particularly against the U.S. and
The dollar index, which measures the greenback
against a basket of currencies, was up 0.4 percent at 83.026,
not far from a seven-month peak of 83.166 set on Thursday.
Investors should also remember that a two-day U.S. Federal
Reserve policy meeting ends on Wednesday, with an update to
economic forecasts and the first news conference of the year
from Chairman Ben Bernanke.
As ever, the market will be hyper sensitive to any hint on
when the Fed might consider slowing its asset buying plans.
"The tone of Bernanke's press conference is likely to be
similar to his recent speeches -- encouraged by the improvement
in recent data but cautious about the outlook and content that
the effect of the ongoing asset purchase program continues to be
a net positive for the economy, despite risks related to
financial market stability," wrote analysts at Barclays.