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Posted March 26th, 2013 by Charles Purdy

Cyprus unsettles the euro | Smart Daily Currency Note

GBP/EUR – 1.1793

Yesterday was a mixed day for sterling with gains on some fronts and losses on others. It made further gains against the euro, reaching a six week high of 1.1820 following comments from the head of the Eurogroup of Eurozone finance ministers who suggested that many countries needing a bail out would follow the Cyprus model of a tax on bank deposits.  On the other front, sterling lost ground against the US dollar as data released showed that the number of new mortgages approved for home purchase in UK fell below the market estimate. Today the Chancellor will testify on the 2013 Budget to the Treasury Select Committee, but his comments are not expected to cause any big disruption to the markets. We also have realised sales figures which are predicted to rebound this month after the indicator came out worse than expected in February. Call in today for the latest updates on sterling.

Cypriot lawmakers reached an agreement with the Eurozone finance ministers very early Monday morning to approve the bailout. In return for the ten billion euro loan from the IMF, the second biggest bank in Cyprus will be wound up, and deposits of over 100,000 euros will be subject to a compulsory one off levy. The Dutch Finance minister said yesterday that the model should be applied to the rest of the Eurozone leading to speculation that raiding banks would be a condition for any further bailouts – to such an extent that two major Italian banks halted trading of their shares after prices plummeted by over 5%. The uncertainty drove the euro down to a four month low against the US dollar, losing two cents very quickly as it headed towards 1.284. It also hit a six week low against sterling and has settled around 1.18 overnight. The euro has certainly been undermined by recent events but the weakness could be fleeting as volatility reduces. Call in now for the latest news and developments, and for an up to the second rate on the euro.

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