* Euro unable to shake Cyprus uncertainty
* Single currency hovers near Tuesday's 4-month trough
* British budget, Fed meeting and Bernanke presser all ahead
By Masayuki Kitano
SINGAPORE, March 20 The euro hovered near a
four-month low on Wednesday after Cyprus rejected terms of a
proposed bailout, creating uncertainty about the country's
financial future and reviving fears about the stability of the
Cyprus overwhelmingly rejected a proposed levy on bank
deposits as a condition for a European bailout on Tuesday,
throwing international efforts to rescue the latest casualty of
the euro zone debt crisis into disarray.
The general assumption in markets, however, is that the
European Union, as so often before, will thrash out a deal that
keeps Cyprus in the single currency.
"European officials have repeatedly come out with last
minute plans to save the day, and I think down at these levels,
that's a major reason why the market isn't chasing it
aggressively," said Callum Henderson, global head of FX research
for Standard Chartered Bank in Singapore, referring to the
euro's moves against the dollar.
"But the longer that Europe doesn't come up with a plan B,
the greater the risk of a major slide in the euro," he added.
The euro held steady at around $1.2877, near its
200-day moving average. On Tuesday, it dropped below that
support and touched a four-month low of $1.28435 on trading
Further losses were prevented only after the European
Central Bank said it was committed to providing liquidity to
Cypriot banks within certain limits.
EU countries had warned they would withhold 10 billion euros
($13 billion) in bailout loans unless depositors in Cyprus,
including small savers, shared the cost of the rescue.
The unprecedented plan to impose taxes on citizens' savings
in Cyprus, announced over the weekend, has stirred worries that
savers in other, larger European countries might be spurred to
withdraw their bank deposits. There is also concern that it
could serve as a precedent for any future bailouts in the euro
Depositors in euro zone countries outside the Cyprus are
unlikely to immediately start withdrawing their deposits, said
Satoshi Okagawa, senior global markets analyst for Sumitomo
Mitsui Banking Corporation in Singapore.
However, the chances of that happening may now be higher,
in the event of any acute increase in worries about a euro zone
country's fiscal woes or the health of its financial sector,
"If things stay quiet that will be okay, but I think there
are now question marks about possible shock absorbers in the
case of any turmoil," he said.
The yen edged higher in thin market conditions, with
Japanese financial markets closed for a national holiday.
The euro slipped 0.2 percent to 122.39 yen. The
dollar fell 0.1 percent to 95.04 yen.
The market is 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 BOJ's next scheduled policy meeting in early
Sterling held steady at $1.5084 ahead of the
release of the UK annual budget later on Wednesday.
Investors are also watching whether UK finance minister
George Osborne announces a change in the Bank of England's (BoE)
remit to allow more leeway on inflation targeting, paving the
way for further monetary easing.
The focus is also turning to the end of a two-day U.S.
Federal Reserve policy meeting on Wednesday. The Fed looks set
to keep buying $85 billion a month in mortgage and Treasury
bonds in an effort to encourage investment and bolster a weak
As ever, the market will be hyper sensitive to any hint on
when the Fed might consider slowing its asset buying plans.
The Fed is due to provide an update to its economic
forecasts on Wednesday, and Fed Chairman Ben Bernanke is due to
hold a news conference.