Cyprus rejects bailout and turns to Russia for help
Cyprus rejected the terms of the proposed EU bailout, creating uncertainty about the country’s financial future. Cyprus overwhelmingly rejected a proposed levy on bank deposits as a condition for a European bailout on Tuesday, throwing international efforts to rescue the latest casualty of the euro zone debt crisis into total disarray. Cyprus has asked Russia for a five-year extension of an existing loan of 2.5 billion euros that matures in 2016, and a reduction in the 4.5 per cent interest rate. We’ll see what the Russians come back with. Cypriot banks remained close for the fourth day running.
Meanwhile in the UK, all eyes on the budget at 12 o’clock today. With the loss of the AAA rating, escalating borrowing exacerbated by weak tax revenues and inflation creeping in, it is unlikely George Osborne will announce anything remotely upbeat. Although he’s likely to start paving the way for more monetary easing shortly, In fact members of the Bank of England’s rate-setting committee remain divided over whether to inject more stimulus money into the UK economy now or leave it and see where we are next month.
The Federal Reserve today is expected to maintain its resolve to keep borrowing costs at record lows despite growing signs that the economy is strengthening. The Fed has said it plans to keep short-term rates at record lows at least until unemployment falls to 6.5 per cent. GBP-USD around 1.5100 and the Euro at around 1.1700.
On the FX markets, GBP/USD has benefited from continued EUR weakness however no major moves in GBP currency have been sustained today as markets appear to be awaiting a number of key risk events for the UK economy tomorrow. Firstly, the BoE minutes will be closely observed to see if the central bank is any nearer to increasing their APF after the previous vote split was more dovish than expected, despite keeping asset purchases on hold. Furthermore, tomorrow sees the UK Chancellor of the Exchequer announce his 2013 budget where he may announce a review of the Bank of England’s remit and is expected to lower growth forecasts.