Euro Experiences the Biggest Fall in 14 Months over Cyprus Turmoil

Euro, the shared currency of 17 European countries has experienced the biggest slid in last 14 months against USD, after levy was proposed on the bank deposits in Cyprus. If this happens, the debt crisis situation in Europe is expected to worsen further. The news was flashed by the Chief Market Strategist of CMC Markets, Michael McCarthy for the first time as he announced Nicos Anastasiades, Cypriot’s President’s plans to impose losses on the depositors of the Island-nation. This is probably going to have a long-term effect on the global financial markets and investment strategies as well. 

According to the Managing Director and Departmental Head of Foreign Exchange of Chapdelaine & Co., Douglas Borthwick, investors are most afraid of the possibility of a Domino effect at this point of time and the same is responsible for pushing Euro down. He added that market will not understand that investors who take out the money may still put it somewhere else in the Euro zone. Thereby, this is not completely negative for the Euro region.

Euro has declined by 1% against USD and is currently priced at $1.2951. Against Yen, the shared currency experienced a slid of 1.2% and it is currently at 123.07 Yen. Incidentally, at one point of time on today, Euro was priced at 121.15 Yen, marking its weakest value since 5th March. Against Pound, Euro has declined by 1% and is now priced at 85.65 Pence; whereas, Euro is now at 1.2240 Francs, after tumbling by 0.3%. The 1-week implied volatility on the exchange rate of EUR-USD has increased by 34%, marking the biggest single day increase since May, 2010. As far as 25-delta risk reversal is concerned, the premium for 1-month options which grant the right to sell Euro against USD relative to those allowing for purchases, jumped up to 1.18 percentage points, from its previous value of 0.96.

The 10-year bond yield of Italy increased by 4 basis points and is currently at 4.64%. On the other hand, the 10-year securities of Spain jumped up by 6 basis points and are currently at 4.98%.

During February, Euro has gone down by 1.3% and is the 2nd worst performer among the developed nation currencies, only after Krone, the major currency of Norway. However, in the 6 months prior to that, Euro had increased by 2.3%.