Euro rebound may be short lived

The euro bounced back as Cyprus reopened its banks amid relative calm after a nervous two-week closure and the spectre of depositor losses and capital controls did not fuel panic elsewhere.

The euro bounced back as Cyprus reopened its banks amid relative calm after a nervous two-week closure and the spectre of depositor losses and capital controls did not fuel panic elsewhere.

The euro was trading 0.3 per cent higher at US128.14¢. The single currency was also helped by a better than expected report on German retail sales in February, which gained 0.4 per cent from January, according to the federal statistics office Destatis.

The Australian dollar was marginally lower at US104.14¢.

The yen remained firm after the new Bank of Japan chief, who has argued for a weaker currency, called Japan's massive debt "abnormal" and warned that Tokyo must avoid a plunge in confidence among bondholders. The yen ended flat against the euro, at 120.64, while the US dollar slipped to 94.12 yen from 94.42.

The euro's rebound against the greenback was limited as analysts warned the Cyprus crisis was not over and Italian politicians failed to produce a governing coalition amid more strains on the economy.

"The euro pared the sharp decline from earlier this week as capital controls in Cyprus helped the periphery country to avert a bank run," said David Song of DailyFX.

"But the weakening outlook for the region may continue to drag on the exchange rate as European policymakers maintain a reactionary approach in addressing the risks surrounding the region."

Analysts at Nomura said they still foresee a gradual weakening of the euro. "Beyond Cyprus, the medium-term picture for the euro remains negative," they said in a note.

"The divergence between key macroeconomic and financial market trends in the eurozone and the US will likely be an increasing important driver of the euro."

Related Articles