Euro retreats on Cyprus worries

The euro hovered within sight of a two-week low against the dollar this morning as euro zone political uncertainty curbed demand…

The euro hovered within sight of a two-week low against the dollar this morning as euro zone political uncertainty curbed demand.
The euro hovered within sight of a two-week low against the dollar this morning as euro zone political uncertainty curbed demand.

The euro hovered within sight of a two-week low against the dollar this morning as euro zone political uncertainty curbed demand for the single currency.

Many strategists said the euro's retreat from a 15-month high hit at the start of February was justified given the weakness in the euro zone economy, as well as political risks in Spain and Italy, and worries about Cyprus's bailout package.

Some market players were also cautious before a G20 meeting later in the week where policymakers may air concerns about recent euro strength and the potentially destabilising effect of "currency wars", in which countries deliberately target lower exchange rates to boost export competitiveness.

The euro edged up 0.1 per cent on the day to $1.3381, holding just above Friday's low of $1.3353, which was the lowest level since January 25.

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Morgan Stanley strategists said the euro could pull back towards $1.3260, where there is support from the 50-day moving average.

The dollar index rose to a one-month high of 80.298.

"The pace of the euro's gains in January made me feel uncomfortable, it was too far, too fast. We should have a period of consolidation over the next few months," said Jane Foley, senior currency strategist at Rabobank.

"But if news from Cyprus, Spain and Italy is not good we could see $1.30 again." Since hitting a peak of $1.3711 on February 1, the single currency has shed about 2.5 per cent.

It sold off last week after European Central Bank president Mario Draghi kept alive expectations of rate cuts and said the bank would monitor the economic impact of a strengthening currency.

There are growing worries about Spain as a scandal on secret cash payments engulfed the prime minister, while confidence in Italy has been shaken in the run-up to the February 24-25 election.

There are also concerns about the terms of financial aid package for Cyprus, a matter that will be high on the agenda at a meeting of euro zone finance ministers in Brussels today.

Reuters