Euro Slides as Cypriot Deal Scrutinized

Investors became worried that the Cypriot bailout plan would set a dangerous precedent for other fiscally troubled Euro-zone nations and sold off their holdings in the Euro which sent the common currency to a 4-month low against its main rival, the U.S. Dollar. Only yesterday, market players had expressed relief that Cyprus had eked out a bailout plan but the Eurogroup head commented that the Cypriot plan be representative of how future bank crises are handled, and though he later attempted to retract his words and mitigate their earlier impact by saying that the Cyprus deal had specific and exceptional challenges it was too late to stop the Euro’s slide.

As reported at 9:03 a.m. (JST) in Toyo, the EUR/USD pair was trading at $1.2854, not far from the overnight low of $1.2829 which was a fresh 4-month low. Since February 1st the Euro has dropped more than 6% against the greenback. The Euro also slipped broadly against the other safe haven currencies; the EUR/JPY pair traded at a 1-month trough of 120.08 Yen.

Also weighing on the Euro is speculation that an Italian credit rating downgrade is imminent, with Moody’s likely to rate Italian sovereign debt at Baa2, a grade considered just barely above junk status. The Italian government’s inability to establish a government a month after elections is cited as among the reasons for the impending downgrade.