The Pound has fallen from its strongest level in five weeks against the Euro as the bond markets of the Eurozone’s most indebted members rallied over optimism that the Cypriot government is close to agreeing to a bailout agreement. The US and Canadian Dollars have also weakened.
Speculation that Cyprus will agree to a Troika led bailout caused the British currency to snap its second week of gains as demand for alternatives to the Euro withered. The Cypriot finance minister failed to negotiate a deal with the Russians leaving the country with little option but to accept the troika’s draconian proposals which will see depositor accounts raided in order to plug a €6 billion gap.
“All the moves we are seeing in pound-euro are focused on Cyprus,” said Eimear Daly, a currency analyst at Monex Europe Ltd. in London. “Everyone is just waiting for any kind of headline to see if we are going to get some kind of resolution. It’s actually impressive how resilient the euro has been.”
Meanwhile the Canadian Dollar also made losses against the single currency. Against its US relation the ‘Loonie’ gained for a second day after economic data showed that retail sales in the country advanced in January, adding to signs that the North American economy may be recovering.
“There’s a lot of competing noise from the headlines. The market has been relatively constrained but if we were talking about a bigger country it would be a lot more volatile,” said Simon Smith, currency economist at FxPro. “The Euro has priced in a fair amount of bad news already and there’s still some underlying hope they will stitch something together. But even if we do see Cyprus remain within the euro zone it’s not going to be a massive positive for the euro.”
The US Dollar’s declines could be temporary. If the Cyprus situation does take a turn for a worse and take economists off guard then investors will likely turn to safe havens for shelter.
Comments are closed.