The euro rose in early Monday trading hours, with Asian markets being the first to react to a deal reached in Brussels by the Eurogroup on Cyprus. International lenders had marathon talks on Sunday night to agree on terms that would secure a 10 billion euro bailout aimed at saving the country from a disorderly exit from the euro and prevent contagion to the rest of the euro zone.
EURUSD climbed 0.4 percent to $1.3040, moving away from a four-month low of $1.28435 reached last Tuesday.
Meanwhile, the safe haven yen was sold off, leading euro higher against the yen, gaining 0.7 percent to 123.60 yen.
The bailout agreement endorsed by euro zone finance ministers, includes a plan to wind down Popular Bank of Cyprus, the nation’s second largest bank, and basically split the bank into a “good” and “bad” bank by shifting insured deposits below 100,000 euros to the Bank of Cyprus to create a “good bank”.
Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve the Popular Bank’s debts and recapitalise the Bank of Cyprus.
Despite euro’s gain this morning, the currency remains vulnerable due to economic fundamentals in the euro zone. There is a huge contrast between US economic growth and European growth. That will continue to weigh on the medium-term outlook for the euro.
Currently in mid-European session trading, the euro has eased lower on profit taking to $1.2998.