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Posted March 19th, 2013 by Charles Purdy

Cyprus shows that politicians never learn | Smart Daily Currency Note

GBP/EUR – 1.1654

Sterling rose against all but three of its 16 major peers yesterday as risk aversion swept through the market. It strengthened the most against the euro reaching a five-week high after the proposed levy on bank deposits in Cyprus was announced. Today we will see a raft of inflation data out of the UK, with Consumer Price Index (CPI) expected to rise to 2.8%, marginally above the 2.7% reading we have seen for the past four months. The Bank of England (BOE) has recently warned that inflation might stay above its 2% target for the next two years. Tomorrow we have the minutes of the last Bank of England meeting released and the UK spring budget. Therefore given what is happening here and elsewhere the likelihood of volatility is high, so please call in today for the latest news from your trader.

The euro had a torrid start to the day yesterday, dropping the most in fourteen months before stabilising in the afternoon. The mass euro sell off followed news over the weekend that Cyprus must raise 5.8. billion euros through taxing deposits in order to secure the 10 billion euros bailout it requires. Yesterdays vote on the tax was delayed until today with Cypriot banks shut until Thursday 20th. Since then, there have been developments and last night the ECB agreed to ease the terms of the levy for smaller depositors; but, stated that the revenue target remains the same. The fear of contagion is evident in the markets and you do wonder if there will be a run of the Cypriot banks once they open for business as savers move their funds elsewhere. This would create another funding crisis for Cyprus. However a  former Central Bank of Cyprus governor has highlighted that should parliament vote against the bank levy, it would cause "chaos", which seems likely as at least one major Cypriot bank would more than likely go bust. Economic sentiment data will be released today, but you can expect it to play second string to any news coming from Cyprus. Call in now for the latest update and a live price.

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