Euro slides as Cypriot deal stirs crisis fears

The euro slid the most in 14 months against the dollar yesterday after an unprecedented levy on bank deposits in Cyprus threatened to throw Europe back into crisis.

The currency fell after Cypriot President Nicos Anastasiades bowed to demands by regional finance ministers to raise e5.8 billion (R68.2bn) by imposing losses on the island’s depositors. The New Zealand dollar and Mexican peso weakened as investors sold higher-yielding currencies.

The euro pared losses as declines in Italian and Spanish government bonds were limited. Italy’s 10-year bond yield increased 8 basis points to 4.67 percent after rising as much as 21 basis points.

“The measure makes people nervous that this may happen to other countries in the future and there could be a flight of capital out of the region,” Mansoor Mohi-uddin, the head of currency strategy at UBS, said. “This adds to our bearish view on the euro, and we expect [its] downtrend to begin again.”

The euro slid 1 percent to $1.2945 (R11.8808) at 7.54am in New York, after dropping as much as 1.5 percent, the biggest fall since January 13 last year. Against the yen, it lost 1.3 percent to ¥123.01.

Scenes of Cypriots lining up at cash machines raised the spectre of capital flight elsewhere and threatened to disrupt a market calm that had settled over the euro zone since the European Central Bank’s pledge last September to backstop troubled nations’ debt. A legislator said a parliamentary vote on the deposit levy scheduled for yesterday had been postponed. – Bloomberg