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Asia currencies gain as Cyprus bailout fears hurt euro | Asia currencies gain as Cyprus bailout fears hurt euro |
(about 1 hour later) | |
Asian currencies have continued to strengthen as uncertainty over the developments in Cyprus hurt the euro. | Asian currencies have continued to strengthen as uncertainty over the developments in Cyprus hurt the euro. |
On Tuesday, Cyprus rejected a controversial levy on bank deposits, proposed by the EU and IMF as part of their bailout package for the country. | On Tuesday, Cyprus rejected a controversial levy on bank deposits, proposed by the EU and IMF as part of their bailout package for the country. |
Fears that Cyprus's two biggest banks may collapse if a bailout is not agreed have seen investors ditch the euro and turn to relatively safer assets. | Fears that Cyprus's two biggest banks may collapse if a bailout is not agreed have seen investors ditch the euro and turn to relatively safer assets. |
The Japanese yen, Australian dollar and US dollar all rose against the euro. | The Japanese yen, Australian dollar and US dollar all rose against the euro. |
The Japanese currency gained as much as 1.4%. It was trading at near 122.22 yen to a euro in Asian trade. | |
Meanwhile, the Australian dollar hit a ten-week high of A$1.24 against the single currency, while the US dollar was trading at near four-month high of $1.2843. | Meanwhile, the Australian dollar hit a ten-week high of A$1.24 against the single currency, while the US dollar was trading at near four-month high of $1.2843. |
Analysts said that investors were worried about how Cyprus's crisis may unfold in the coming days, especially if any strict conditions may be imposed as part of a potential bailout. | Analysts said that investors were worried about how Cyprus's crisis may unfold in the coming days, especially if any strict conditions may be imposed as part of a potential bailout. |
"It leaves Pandora's Box wide open," said Mike Moran, senior currency strategist at Standard Chartered. | "It leaves Pandora's Box wide open," said Mike Moran, senior currency strategist at Standard Chartered. |
"If policymakers initially thought it was OK to tax depositors as heavily as they first suggested, one just doesn't know what plan B or C might be." | "If policymakers initially thought it was OK to tax depositors as heavily as they first suggested, one just doesn't know what plan B or C might be." |
Mr Moran added that the given the uncertainty surrounding the crisis, the euro was likely to weaken further. | Mr Moran added that the given the uncertainty surrounding the crisis, the euro was likely to weaken further. |
"Unless we have a swift resolution, this will weigh on the outlook for the currency," he said. | "Unless we have a swift resolution, this will weigh on the outlook for the currency," he said. |
'Negative press' | |
The EU and the IMF had asked Cyprus to impose a levy on bank deposits as part of a 10bn euro (£8.7bn; $13bn) bailout package. | |
According to the original proposal, announced over the weekend, savers with deposits of up to 100,000 euros (£86,000; $130,000) would have had to pay a one-off levy of 6.75%, while those over that amount would have been charged at 9.9%. | |
The pact was widely criticised and saw customers make a rush to withdraw money. | |
On Tuesday, the Cypriot finance ministry announced a change in the plan that would exempt savers with less than 20,000 euros in deposits. But it said those over 100,000 euros would still be charged at 9.9%. | |
The plan was still rejected by the parliament with no MP voting for it. | |
Meanwhile, the country's banks have been ordered to remain shut until Thursday, amid concerns of a run on bank accounts. | |
However German Finance Minister Wolfgang Schauble said he "regretted" the vote and that Cypriots must understand that European Central Bank aid was contingent on a reform programme. | |
"There's a danger that they won't be able to open the banks again at all," he said. | |
"Two big Cypriot banks are insolvent if there are no emergency funds from the European Central Bank." | |
The crisis has triggered fears that the eurozone debt crisis may escalate again and hurt global economic recovery. | |
This has impacted global stock markets. On Tuesday, the S&P 500 index fell for a third straight day. | |
On Wednesday, some Asian stock markets also dipped as investors continued to worry over the impact this may have on Asian economies, which rely heavily on demand from Europe for their exports. | |
Australia's ASX 200 and South Korea's Kospi were both down 0.3%. | |
Analysts said that markets were likely to remain under pressure. | |
"It seems like you're going to have a run of negative press over the next few days at least," said Michael Turner, strategist at Royal Bank of Canada in Sydney. | |
"So until this plays out and until that cloud is dealt with, it's going to be hard to get too optimistic on the outlook in the near term." |