Euro weakens as Cyprus concerns persists
The markets remained anxious as the Euro weakened further today near four month lows against the Dollar. This is due to the negative implications of the Cyprus Bailout plan and concerns that it could be a model for other economies in the Euro zone. Knowing the deal conveyed temporary relief to markets, the investors focused on possible future issues of the bailout plan and the analysis of other weak economies. Banks in Cyprus will remain closed at least until Thursday to ensure the whole system functions smoothly. The Euro was also hurt by the Italian political deadlock last month and news that the economy in Spain fell further into recession.
Meanwhile, a survey by the Confederation of British industry showed today that British retail sales were flat this month. This was due to falling sales in clothing, footwear and leather. The cold weather in March could be a factor. Inflation stays constant at 2.8 per cent for the third month. U.K. House prices reported their biggest gain in three years. The Funding for lending scheme has helped boost the U.K. housing market.
On the FX Markets, there was little in terms of fresh UK related macroeconomic news flow throughout the session and instead, market participants reacted to the developments in Cyprus, as well as the fact that Fitch placed the UK on rating watch negative late on Friday. Fitch said they expect to complete its review of the UK’s sovereign rating by the end of April. Separately, press reports over the weekend indicated that the Bank of England will this week announce a shake-up of the financial policy committee (FPC) that is expected to see a strident critic of Britain’s big lenders ousted. Finally, according to Hometrack, house prices rose the most in three years this month, led by a surge in London, as demand outstripped supply. Technical support levels are seen at 1.5166 and then at 1.5027, last week’s low.