Cyprus agrees last minute bail-out deal with Eurozone
Cyprus clinched a last-ditch deal with international lenders to shut down its second-largest bank and inflict heavy losses on uninsured depositors, in return for a €10bn bailout. The agreement came hours before a deadline to shrink the banking system in tense negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund. The main difference from the deal rejected last week is that deposits under €100k will not be hit and one of the country’s largest banks will be liquidated. Insured deposits below €100k held with the bank to be liquidated will be transferred to another bank.
Meanwhile, Britain looked poised to lose its AAA rating from a second ratings agency after Fitch Ratings warned on Friday it was likely to downgrade the country in the coming weeks, citing high government debt levels and weak growth. A month since Britain was downgraded by Moody’s; Fitch put the country on review and said a downgrade was a heightened possibility. Osborne’s budget statement included a halving of estimated economic growth this year to just 0.6 per cent. With the Moody’s downgrade last month, it joined the United States and France in having lost its top-notch rating from at least one major agency. Standard & Poor’s rates Britain as AAA but cut the outlook on that rating to negative last December, implying a one in three chance of a downgrade.
On the FX Markets, GBP/USD will likely remain highly related to the risk on/off investor sentiment this week which is again expected to be driven by the highly controversial bailout of Cyprus. Talks between various parties are set to continue as the week begins but it looks like that the ECB will not turn off the much needed ELA and keep the liquidity levels aplenty for banks in Cyprus and the rest of the joint currency block.