Euro trades near four-month low amid Cyprus contagion concerns

The euro traded 0.2 percent from a four-month low versus the dollar as traders speculated future European bailouts could include the kind of bank deposit levies imposed on Cyprus.

The 17-nation currency headed for its biggest weekly decline in seven with Italian political parties still deadlocked ahead of a deadline Thursday for forming a government. The yen gained against all 16 of its major peers with Bank of Japan Governor Haruhiko Kuroda set to speak before upper house lawmakers ahead of a policy meeting next week.

“There is concern what’s happened in Cyprus is setting a precedent for what could potentially happen to deposit holders in other parts of the zone,” said Janu Chan, a Sydney-based economist at St. George Bank Ltd. “I suspect Italian politics could weigh on the euro.”

The euro was little changed at $1.2779 as of 8:22 a.m. in Tokyo from Wednesday, when it touched $1.2751, the lowest since Nov. 21. It has declined 1.6 percent this week, the most since the five day’s ended Feb. 8.

The shared currency fell 0.1 percent to 120.60 yen, following a 0.6 percent drop Wednesday. Japan’s currency gained 0.1 percent to 94.38 versus the dollar.

Thursday is a holiday in most of Europe, the US, and much of Asia.

Cyprus’s banks will open their doors to customers Thursday for the first time in almost two weeks, with new rules curbing access to cash. They’ve been closed since March 16, when the European Union presented a plan to force losses on all depositors in exchange for a 10 bailout.

A subsequent agreement shuts Cyprus Popular Bank Pcl, the nation’s No. 2 lender, and imposes larger losses on uninsured depositors.

In the US, revised figures from the Commerce Department Thursday may show the economy expanded at a revised 0.5 percent annual pace in the fourth quarter, faster than the government’s previous estimate of 0.1 percent growth, according to the median forecast in a Bloomberg News survey.

In lower house testimony on March 26, the BOJ’s Kuroda pledged to buy more government bonds to help achieve a 2 percent annual inflation target in two years. The central bank will meet on policy on April 3-4. [Bloomberg]

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