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Euro Rises as Cyprus Seeks Alternatives to EU Plan

By Joseph Ciolli and John Detrixhe
March 20, 2013 5:14 PM EDT

The euro strengthened from a four- month low against the dollar as Cyprus sought alternatives to the European Union plan to help the nation avoid a banking collapse and the Federal Reserve maintained stimulus measures.

The dollar remained lower against the 17-nation currency after the Fed said it will continue buying $85 billion of bond per month to bolster the economy. The euro rose after the European Central Bank’s pledge to provide liquidity to Cyprus gave the nation time to renegotiate a financial rescue and on speculation that Russia may provide aid. The yen fell against a majority of its 16 most-traded after Nikkei reported without attribution that incoming Bank of Japan Governor Haruhiko Kuroda will pledge “bold” monetary easing.

“We haven’t seen a lot of contagion from Cyprus to the larger financial markets,” Vassili Serebriakov, a foreign- exchange strategist at BNP Paribas SA in New York, said in a telephone interview. “Markets are still of the view that a solution is going to be found, which is what’s been supporting the euro.”

The euro advanced 0.4 percent to $1.2933 at 5:00 p.m. New York time, after sliding to $1.2844 yesterday, the weakest level since Nov. 22. The common currency strengthened 1.3 percent to 124.17 yen. Japan’s currency weakened 0.9 percent to 96.01 per dollar.

Peso Gains

Mexico’s peso rose versus most of its 16 major peers after policy makers signaled they will keep benchmark borrowing costs unchanged after cutting them earlier this month. The country isn’t planning measures to curb the peso’s gains this year, Deputy Finance Minister Fernando Aportela said March 17.

The peso rose 0.7 percent to 12.3480 per dollar, touching the strongest level since September 2011.

Hungary’s forint strengthened for a second day, and the most against the greenback of its 31 most-traded peers, amid speculation the country will avoid dramatic policy measures to help foreign-currency debtors.

The forint appreciated 0.2 percent to 304.87 per euro and 0.6 percent to 235.74 to the dollar.

South Africa’s currency fell for a second day as the country’s central bank kept its benchmark interest rate unchanged for a fourth meeting as a slump in the rand stoked inflation, preventing policy makers from providing further stimulus to spur economic growth.

The rand weakened 0.9 percent to 9.3311 per dollar and touched the lowest level since April 2009.

Cyprus Update

Cyprus hasn’t reached any deal with Russian investors for the sale of Cyprus Popular Bank Plc, government spokesman Christos Stylianides said in a telephone interview in Nicosia today. A preliminary deal to sell the bank to Russian investors was reached, Kathimerini Cyprus reported earlier, without citing anyone.

“The market is looking for some kind of a resolution to this issue,” Fabian Eliasson, vice president of corporate foreign-exchange sales at Mizuho Financial Group Inc. (8411) in New York, said of the Russian-investor speculation on a Cypriot bank.

The ECB is likely to delay a decision on whether to continue to supply Cypriot banks with emergency funds as it awaits clarity on the nation’s bailout, two people familiar with the deliberations said. The ECB assumes that a bank holiday in Cyprus will be extended to the end of the week, the people said.

ECB View

“The ECB statement that they are going to provide more liquidity means there is some time for renegotiation for Cyprus, so that’s a positive,” said Lutz Karpowitz, a senior foreign- exchange strategist at Commerzbank AG in Frankfurt. “As long as there is still some room for further negotiations, the market is relatively relaxed. If there is more and more impression that there won’t be a solution, then there may be more weakness in the euro.”

The euro may weaken to $1.25, the lowest since August, if no solution for Cyprus is found, Karpowitz said.

Europe will find a resolution for Cyprus, said Laurence D. Fink, chief executive officer of BlackRock Inc. (BLK), the world’s largest asset manager.

“It’s not a really major economic issue,” Fink said in a Bloomberg Television interview in Hong Kong. “It’s a $10 billion issue. It does remind us of the frailty of Europe. It does remind us that the European fix will be multiple years.”

Market Measure

The yen has dropped 2.1 percent during the past month, the second-worst performer after Norway’s krone among 10 developed- market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro weakened 0.9 percent and the dollar strengthened 1.3 percent.

The pound reversed an earlier decline against the dollar after minutes of the Bank of England’s March 6-7 meeting showed a majority of policy makers said more bond purchases may erode their credibility.

The pound was about unchanged at $1.5100 after weakening as much as 0.5 percent.

Fed officials forecast the nation’s unemployment rate will hit the central bank’s threshold for raising interest rates sometime in 2015, while projecting faster improvement in the labor market this year.

U.S. central bankers estimate the jobless rate will average 6.7 percent to 7 percent in the final quarter of 2014 and 6 percent to 6.5 percent in 2015, according to their central tendency estimates. Similarly, 13 of the 19 Federal Open Market Committee participants estimated that the first increase in the federal funds rate from its current range of zero to 0.25 percent.

“Still-high unemployment in combination with relatively low inflation underscores the need for policies that will support progress toward maximum employment in the context of price stability,” Fed Chairman Ben S. Bernanke said at a news conference in Washington after the policy statement.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trade partners, dropped 0.2 percent to 82.046.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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