Euro slides most in 14 months as Cyprus turmoil shakes markets
The Euro fell the most in 14 months against the Dollar after an unprecedented levy on bank deposits in Cyprus threatened to throw Europe back into crisis. Scenes of Cypriots lining up at cash machines raised the threat of capital flight elsewhere and threatened to disrupt a market calm that settled over the 17-member currency bloc. Cyprus’s parliament will vote on the plan today, with growing speculation the tax on deposits below 100,000 Euros might be lowered to lessen the blow for smaller savers.
Whereas, the Pound jumped to its strongest level in more than a month against the euro; fuelling demand for U.K. assets as a haven. The plan to devolve potentially billions of Pounds of public spending to local authorities and businesses in Britain to boost a stagnant economy won a green light from the government on Monday. The scheme will see public money for projects such as housing and transport, now controlled by various government departments, pooled into a single pot from 2015. Regional groupings of local authorities and businesses – known as local enterprise partnerships – will bid for the funds and, if successful, oversee how they are spent.
On the FX Markets, much of the attention this week will be on the budget which is due to be presented by the chancellor mid-week. Even though the UK lost its much cherished AAA credit rating, it is unlikely that the budget will deviate away from austerity and instead reinforce the view that the coalition has been preaching for so long i.e. there is no money and that the age of austerity needs to be endured. GBP/USD remains in a bearish pattern and the release of another downcast report from the government will only aid the decline. In terms of technical support levels, the first key level to note is the 50% retracement of the latest recovery at 1.4976 and then at 1.4832.