Cyprus Face EU Ultimatum

22 March, 2013

Simon Eastman

The pound fared well again yesterday across the board following on from Wednesday’s rally as retail sales for February came in well over expectations. The monthly figure forecast for 0.5 percent, actually posted in at 2.6 percent and last month’s dismal negative 0.6 was revised up slightly to -0.5 percent.

This set the course for sterling, which was a slow upward trend against most of the major currencies which lasted throughout the day. The only real exception to this was the gains made against the Euro, which came under further pressure overnight and started the day a cent lower against the pound and half a cent against the US dollar.

This will come as no surprise to anyone who follows world news, as the crisis in Cyprus has been hitting the headlines all week. With pictures of customers queuing up outside cash points around the country trying to access their funds and disgruntled bankers protesting outside parliament, concerned whether they are all about to lose their jobs should their respective banks get shut down, it’s easy to see why the Euro is struggling.

Friday is likely to be another day where the Euro is under selling pressure as we wait to see what Cyprus is going to do to sort itself out. The European Central Bank has given the country until Monday to raise billions of Euros it needs to secure a bailout, which if it can’t, could force the collapse of its banking system and effectively end its time in the EU. Parliament is trying to put steps in place to halt the free flow of cash from the island (we heard on Monday how Russians and in-the-know Cypriots funnelled billions out before the news release last weekend) and find ways of raising liquidity. Rumours of a possible loan from Russia have been circulating, but seeing as they already have a €2.5 billion loan out, it’s unlikely the Russians will be looking to add to this (especially as the likelihood of getting it back seems slim right now!)

With little data out anywhere around the world today, the markets will solely be focussed on the Cypriot parliament vote and whether any salvation can be found before the ECB’s deadline.

If you have a Euro requirement coming up, these rocky times might be your best opportunity to secure at higher levels than we have seen for some weeks. Bear in mind that when Greece was is turmoil last year, once agreements started to come through to resolve the issues, the Euro benefitted significantly, despite the issues still being prevalent. If parliament start to make the right noises, we should expect to see these gains the pound has made slip away. Stay in close contact with your broker at Currency Index and avoid missing out.