* Euro trades near 4-month low vs dollar
* Risk appetite fades on worries over Cyprus deal fallout
* Sellers to emerge on any euro rebounds
By Anooja Debnath
LONDON, March 26 The euro struggled near
four-month lows against the dollar on Tuesday as markets
remained anxious about negative implications of the Cyprus
bailout plan and if it would serve as a template for other euro
The single currency was hurt by fears that future euro zone
bank rescues could impose a burden on depositors. The overall
bleak outlook of the broader euro zone economy and political
uncertainty in Italy also weighed on it.
The euro was up 0.1 percent on the day at $1.2868,
not far from Monday's low of $1.2829, its lowest since Nov. 22.
Large option expiries were reported at $1.2750.
Traders cited the euro's 233-day moving average at $1.28497
as near-term support and said they remain sellers of the euro on
On Monday, the euro tumbled after the head of the Eurogroup,
Jeroen Dijsselbloem, said the rescue plan agreed for Cyprus will
serve as a model for dealing with future banking crises. He
later appeared to backtrack, saying Cyprus was a specific case
with exceptional challenges.
"The developments yesterday were quite negative for the euro
as it looks to be a bit of a change in policy approach within
Europe with respect to bailouts. They seem to be putting the
emphasis onto investors rather than tax-payers," said Ian
Stannard, head of European FX strategy at Morgan Stanley.
"That is going to keep the euro under pressure as it could
well deter foreign investors from returning to peripheral
European assets," he said, adding that he expects the euro to
test the $1.27-$1.2660 level in the coming days.
The deal for Cyprus involves raiding deposits above 100,000
euros in two of Cyprus' largest banks, which are not guaranteed,
to cover debts of Popular Bank of Cyprus, also known as Laiki,
and to recapitalise Bank of Cyprus.
Although the deal brought temporary relief to markets,
investors soon focused on the future ramifications of the
bailout plan and what this meant for other larger economies with
weak banking sectors.
In Cyprus, the scheduled reopening of banks has been
postponed to Thursday from Tuesday and even then they would be
subject to capital controls to prevent a run on deposits.
The euro's sharp falls across the board on Monday were
exacerbated by speculation of a credit rating downgrade for
Italy, which is struggling to form a government after an
inconclusive election last month.
The single currency was steady at 120.99 yen,
staying above Monday's one-month low of 120.08 yen.
The yen, which tends to rise in times of financial market
stress, found some support on Tuesday on worries over Cyprus and
the broader euro zone.
The dollar was down 0.1 percent at 94.02 yen and some
way off a 3-1/2-year high of 96.71 yen hit on March 12.
Analysts said that although the yen's overall weakening
trend remained intact, with expectations for drastic Bank of
Japan monetary easing already high, the dollar could run into
some selling if policymakers disappointed at its April 3-4
"Buying the yen, which has increased on concern about
Europe, could accelerate on fears about Spain, lower yields on
10-year U.S. Treasuries, and of course if the BOJ disappoints
next week," said Junya Tanase, chief FX strategist at JPMorgan
Chase Bank in Tokyo.Œ
Earlier in the day, the Japanese currency fell after the new
BOJ Governor, Haruhiko Kuroda, reaffirmed his commitment to bold
monetary easing to achieve 2 percent inflation.