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Euro weakened by Cyprus developments

Tuesday, March 19 12:18:47

The euro fell today, with investors nervous ahead of a vote in Cyprus on a controversial bank deposit levy that has fuelled concerns of fresh euro zone instability.

A Cyprus government spokesman said a plan to levy taxes on bank deposits, crucial for the country to secure financial aid, was unlikely to be approved by parliament on Tuesday. That would push the island closer to a default and a banking collapse that could have repercussions across the euro zone.

It could also inject fresh volatility into financial markets and weigh on the euro. Safe-haven German bund futures were higher On Tuesday while European stocks fell.

The single currency fell 0.1 percent against the dollar to $1.2946, holding within sight of Monday's three-month low of $1.2882. Below that, support was expected around the 200-day moving average at $1.2874.

"If the vote doesn't go through, it would lead to another precipitous fall in the euro as worries about a banking crisis will escalate," said Adam Myers, European head of FX strategy at Credit Agricole. He expects the euro to drop to $1.27 in coming months.

The euro gained a short-lived boost from a slightly better-than-expected German ZEW economic sentiment survey, but demand was hampered by worries about Cyprus.

Tohru Sasaki, head of Japan rates and FX research at JPMorgan Chase Bank, said the euro looked vulnerable. Its rebound from Monday's three-month low was much smaller than its bounce after the fall triggered by a Greek election last May, when investors were unnerved by the ruling coalition's failure to win a majority.

Against sterling, which is often bought as a shelter in times of heightened uncertainty in the euro zone, the euro hovered near a five-week low of 85.32 pence hit on Monday to change hands at 85.55 on Tuesday. Reuters