The euro rose on Monday after Cyprus clinched a deal with international lenders for a 10 billion euro bailout aimed at saving the country from financial meltdown. The single currency rose 0.4 percent to $1.3040, pulling away from a four-month low of $1.28435 set last Tuesday. Against the yen, the euro climbed 0.7 percent to 123.60 yen.
The deal for Cyprus, which was swiftly endorsed by euro zone finance ministers, includes plans to shut down the country's second largest bank in return for a 10 billion euro ($13 billion) bailout. The plan involves winding down Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank".
Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalise the Bank of Cyprus. The agreement came hours before a deadline to avert a collapse of the banking system in Cyprus. Until a deal was reached, there had been concerns that Cyprus might have been forced to exit the euro zone.
Analysts said the euro might rise to around $1.3100 to $1.3150 in the near term as investors pare back bearish bets versus the single currency. However, they were sceptical that there would be a sustained rally in the euro, given concerns about the euro zone's economic outlook. "People are focusing on European growth and the structural problems that are going to impede European growth," said Sim Moh Siong, FX strategist for Bank of Singapore.
Technical charts show several resistance levels for the euro in the $1.3130 to $1.3140 area including its 100-day moving average at about $1.3132 and the euro's March 8 intraday high of $1.3135. "I have regarded the problems facing Cyprus as being only a short-term trading factor for the market," said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo. The yen, which tends to rise in times of market stress, retreated broadly as the worries over Cyprus eased, with the dollar strengthening 0.4 percent to 94.82 yen.
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