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Cyprus bank account robbery shakes Euro

18th Mar 2013
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FX Market Overview

 

Wales improved throughout the tournament and England declined. I thought Jonathan Davies was auditioning for a part in 50 Shades of Grey, he was so excited. But apart from England’s rugby team being outplayed and outsmarted, the big news of the weekend was the declaration by the Cyprus government to impose a levy on funds in bank accounts of between 6.75% and 9.9%. That, they said would reduce the amount they would need form European taxpayers as a bailout. The furore that has emerged from around the Eurozone to this ‘theft’ as it has been described, is not matched by the weakening of the euro itself.

Perhaps it is early days but the euro has dropped about 1 ½ cents against the Pond and roughly the same amount against the US Dollar. Given the talk of a potential Cypriot exit from the Eurozone and the potential cash withdrawal from other troubled countries like Spain and Greece, I am surprised the Euro hasn’t fallen further. If Cyprus is seen to get away with pick-pocketing savers, there will be a temptation for other countries to follow suit, although, as I have mentioned before, the massive volume of Euros being held in reserve banks does dwarf the cash at hand for mere mortals like us. Aside from the Cyprus factor, fears are growing over the ‘anti-democratic’ moves being made by the Hungarian government and that was also a topic of much debate at the weekend’s EU summit. 

On the UK side of the Channel, Sterling may be looking better against the troubled Euro but it is still weak after one Bank of England member and Governor Mervyn King stoked expectations of further monetary stimulus. Mr King acted out of character on Thursday when was rather upbeat about the UK economy and everyone was very surprised that he had spoken without weakening the Pound but he tried to make amends over the weekend.  Sterling ahs a few hurdles to get over if it is to rally; €1.1750 is going to be tough and so is US$1.62. We will see whether the poor old Pound can raise its game as the week progresses. Data wise, we have the minutes from the last Bank of England meeting on Wednesday and a budget statement from the Chancellor of the Exchequer on the same day. It would be a miracle if the chancellor could create something within the budget which would move sterling substantially but who knows.

A drop in the Empire State manufacturing sentiment index and the worst reading for 15 months in the University of Michigan consumer sentiment index weakened the US Dollar on Friday and not even a rise in inflation could stop that. Neither could a rise in manufacturing and industrial output nor increased capital utilisation. The only constant in US data at the moment is the uncertainty. Obviously, the news from Europe over the weekend has pulled some funds away from Europe and into the US Dollar. The big news of the week for America is the interest rate decision from the Federal Reserve Bank but no change is expected there so it is a bit of a damp squib. However, if there is any change in the sentiment expressed in the Fed’s statement that will change things.    

Farther afield, the Governor of the Reserve Bank of New Zealand has said that NZ interest rates will stay flat for the rest of the year and that the Kiwi Dollar is 10-15% over-valued but that hasn’t had much effect. Wednesday’s Quarter 4 economic growth data is due for release on Wednesday and that is far more likely to illicit a response from NZD traders. The forecast is for a rise in annualised growth from 2.0% to 2.3% and that would be very positive for the NZ Dollar. Anyone who needs to buy Kiwi Dollars in the short term may want to act before Wednesday.

And, given the country’s history, Hungarians could be forgiven for being worried when tanks rolled along the main road between Budapest and Vienna but it was simply a matter of using appropriate vehicles to get through heavy snow which has caused disruption across Europe. I know it is mean to say it but it is kind of reassuring to hear that bad weather causes chaos in other countries. We always think it’s just Britain that stops at the first sign of a snowflake. Oh and I must reiterate that NO military coup has been reported in Hungary.

Quote

Anytime four New Yorkers get into a cab together without arguing, a bank robbery has just taken place.
Johnny Carson

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By David Johnson, Director, Halo Financial - Specialist Currency Services

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