Euro hits fresh 4-month low on Cyprus banking sector concern before recovering
The euro briefly fell to a fresh four month low versus the dollar as investors assessed whether Cyprus’s bailout signalled deeper private-sector losses in bank restructuring. The pair is now trading at levels last seen in November 2012. This is a new low for Euro/Dollar in 2013. The deal that was announced in Cyprus left many uncertainties, and an ill timed comment by the head of the Euro group also put a lot of pressure on the common currency. Banks in Cyprus remain closed as officials try to sort out the details of the bank haircut. Meanwhile, the push to form a government in Italy continues and this will catch the attention of the euro, together with the moves to open banks in Cyprus tomorrow. Business and consumer confidence data will be of secondary interest against this backdrop.
In the intervening time, UK’s fourth-quarter disposable income Falls as the economy weakens. Britons’ expendable income fell in the fourth quarter, underlining the pressure on consumer spending as the economy stands on the edge of another recession. Sterling held stable against the dollar and rose against the struggling Euro on Wednesday, but UK growth and current account data could push it lower if it highlights the economy’s blank outlook. While Britain’s economy is stagnating, there is evidence of a more sustained pick-up in the United States, which could mean Sterling still has further to fall against the Dollar this year.
On the FX Markets, GBP/USD settled lower and the outlook remains bearish as market participants continue to fret over the ability of the BoE to manage inflation expectation. In terms of UK related commentary, Capital Economics have said that the weather disruption in the UK is likely to be smaller than in December 2010. However, the snow could well be enough to cause GDP to fall for a second consecutive quarter.