* Euro rise but vulnerable to Cyprus uncertainty
* British budget in focus, after BoE minutes
* Fed meeting and Bernanke watched for hints on QE
By Jessica Mortimer
LONDON, March 20 The euro rose against the
dollar on Wednesday, recovering from a slide to a four-month
low on Cyprus's rejection of the terms of a bailout, as buyers
emerged among investors convinced a deal would be reached.
The Cypriot parliament rejected on Tuesday a proposed levy
on bank deposits, which was a condition for the bailout,
throwing efforts to rescue the indebted euro zone country into
disarray and triggering a sell-off in the euro.
The general assumption in markets was that policymakers
would cobble together a deal to keep Cyprus in the currency
bloc, although analysts and traders said the euro remained
Some analysts also said a Federal Reserve policy decision
later on Wednesday could put the euro back under pressure by
highlighting the discrepancy between an improving U.S. economy
and the fragile euro zone.
The euro was up 0.4 percent at $1.2940, recovering
from Tuesday's four-month low of $1.28435 and holding above
chart support at the 200-day moving average around $1.2876.
One trader said Tuesday's slide was prompting a
short-covering rally which could take the euro towards $1.2960.
Any rise could be seen as an opportunity to sell the currency.
"The Cypriot situation is a short-term issue which adds to
the euro's weakness," said Asmara Jamaleh, currency strategist
at Intesa Sanpaulo in Milan.
"There are more fundamental reasons which should send the
euro lower in the short term, namely the comparison between the
performance of the U.S. economy and the weak performance in the
She said Intesa Sanpaulo forecast the euro would fall to
$1.27 within one month, down from a $1.30 forecast previously,
with a risk it could fall further towards $1.25.
Some strategists said the European Central Bank's assurance
on Tuesday that it was committed to providing liquidity to
Cypriot banks within certain limits had helped curb euro losses.
"Markets in Europe are used to getting a solution at the
very last minute," said Lutz Karpowitz, currency analyst at
However, the unprecedented plan to impose a levy on
citizens' savings in Cyprus, announced over the weekend, has
stirred worries that savers in other, larger European countries
might withdraw their deposits.
UK BUDGET, FOMC AHEAD
The euro was also buoyed by a rise in sterling
after minutes from the last Bank of England policy meeting
showed members were still split at 6-3 on further asset
purchases, confounding some expectations of a closer vote.
However, analysts said any gains in sterling may prove
fleeting, given speculation that UK finance minister George
Osborne could change the remit of the BoE to give it more leeway
to stimulate growth when he presents the annual budget later on
Sterling was last up 0.14 percent on the day at
After that, focus will turn to the Federal Reserve, which is
expected to maintain its policy of buying $85 billion a month in
mortgage and Treasury bonds although there is expected to be a
debate about the potential risks of stimulus.
In Japan, the market was wary of any comments from Haruhiko
Kuroda, who becomes governor of the Bank of Japan on Wednesday.
Expectations are high that the BOJ will embark on a much more
aggressive monetary policy to fight deflation.
The dollar was up 0.2 percent at 95.35 yen.