* Euro wallows near four-month lows vs USD
* Italy's funding costs rise, Cyprus banks set to reopen
* Dollar index hovers at eight-month highs
* Yen slide loses downward momentum as BOJ meeting awaited
By Sophie Knight and Hideyuki Sano
TOKYO, March 28 The euro languished at
four-month lows on Thursday, after a rise in Italy's funding
costs delivered an extra blow for the currency already suffering
from ramifications of the rescue deal for Cyprus.
The yen gained slightly followed a period of weakening due
to expectations - now heavily priced in - of aggressive monetary
easing by the Bank of Japan at new governor Haruhiko Kuroda's
first policy review on April 3-4.
The common currency limped up 0.1 percent to $1.2790,
but remained near a four-month low of $1.2750 hit on Wednesday
after a debt auction in Italy saw borrowing costs climb to
five-month highs as investors demanded a higher premium in the
face of prolonged political uncertainty.
Italian centre-left leader Pier Luigi Bersani was left with
only slim hope of forming a government after talks with rival
party leaders ended with rejection from Beppe Grillo's 5-Star
"If Italy has to hold a re-election, that will surely remind
the market of a fall in the euro after Greece was forced to hold
a re-election last year," said Ayako Sera, market economist at
Sumitomo Mitsui Trust bank.
Markets were also nervous as Cyprus prepared to reopen its
banks for the first time in nearly two weeks, with fears of
bank runs prompting the government to impose a raft of tough
controls including limiting withdrawals and banning cheques.
"Headline risks for the euro should persist, although a
positive turn of events in either country (Cyprus or Italy)
would probably come as a greater surprise given the market's
subdued expectations," said Vassili Serebriakov, strategist at
"Our technical analyst highlights that a break of the
$1.2806 technical support level opens the way for a decline to
The euro has important technical support just below $1.27,
including a 61.8 percent retracement of its July-Feb rally
around $1.2680 and the November trough of $1.2661.
The setback in the euro kept the dollar index up
close to its highest level in nearly eight months. The index,
which tracks the greenback's performance against a basket of
currencies, was last at 83.123, having touched 83.302 on
But the dollar lost ground against the yen, with
some analysts saying expectations of easing from the Bank of
Japan, which triggered the currency's 15 percent slide against
the dollar since mid-November, were losing their potency.
"The market was pricing in 'surprise' easing but there's no
surprise anymore, nothing new in Kuroda's statements, so people
are inevitably covering their yen shorts," said Masashi Murata,
senior currency strategist at Brown Brothers Harriman in Tokyo.
Among other reasons cited by analysts for strength in the
yen was Japanese exporters' selling on the next-to-last trading
day of their financial year, as well as a fall in Nikkei futures
triggered by a slide in Chinese equity markets.
To Murata, 94 yen to the dollar "looks like a strong base,
particularly because the U.S. recovery still looks strong."
The dollar grazed 93.98 yen on Thursday before hopping back
up to 94.190. It has firm support at 93.78 yen, the kijun line
on its daily Ichimoku charts.
The greenback also outperformed commodity currencies as some
investors cashed in on recent solid gains ahead of the Easter
The Australian dollar fell 0.2 percent to $1.0425,
pulling back from a two-month high of $1.0497 set on Tuesday, as
Chinese shares tumbled after that country's banking regulator
ordered banks to strengthen checks on underlying assets of a
range of wealth management products.
With no major economic news out of Asia on Thursday, the
focus was squarely on developments in Europe before markets
there and in the U.S. close for the Easter holiday on Friday.