March 26, 2013 / 5:10 AM / in 5 years

FOREX-Euro hovers near 4-month low as Cyprus deal stings

* Euro inches up but still near 4-month low vs dollar

* Risk appetite fades on Cyprus deal fallout

By Sophie Knight and Ian Chua

TOKYO/SYDNEY, March 26 (Reuters) - The euro languished near four-month lows against the dollar on Tuesday, held back by fears that future euro zone bank rescues will involve a tax on depositors, while the yen struggled after Japan’s central bank chief reaffirmed a commitment to bold easing.

The common currency rose 0.1 percent to $1.2864 after having hit a low near $1.2829 on Monday, its lowest level since Nov. 22.

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. That reversed its earlier gain from relief that Cyprus had managed to clinch a last-minute deal, avoiding an imminent bank collapse.


“While these comments were partly retracted, markets have interpreted the message as an indication that private sector bail-ins will need to play a greater role in any future bail outs,” said Vassili Serebriakov, strategist at BNP Paribas.

The euro’s sharp falls against the yen, sterling, Swiss franc and Australian dollar 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.

On Tuesday, the euro saw lacklustre gains against all of those currencies. It rose 0.1 percent against the yen to 121.13 yen, staying above Monday’s one-month low of 120.08 yen.

The dollar held steady at 94.17 yen, finding some support after the new Bank of Japan Governor, Haruhiko Kuroda, reaffirmed his commitment to bold monetary easing to achieve 2 percent inflation.

The yen is still searching for fresh impetus to weaken after reaching a 3-1/2 year low of 96.71 against the dollar on March 12. A near-term focal point is the BOJ’s next policy meeting on 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.

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