Euro rebounds after Cyprus banks reopen

THE euro bounced back on Thursday as Cyprus reopened its banks amid relative calm after a nervous two-week closure and the spectre of depositor losses and capital controls did not fuel panic elsewhere.

At 0800 AEDT on Friday the euro had climbed 0.3 per cent to $1.2814, compared to $1.2776 late on Wednesday.

The single currency was also helped by a better-than-expected report on German retail sales in February, which gained 0.4 per cent from January, according to the federal statistics office Destatis.

The yen remained firm after the new Bank of Japan chief, who has argued for a weaker currency, called Japan's massive debt "abnormal" and warned that Tokyo must avoid a possible plunge in confidence among bondholders.

The yen ended flat against the euro, at 120.64 yen, while the dollar slipped to 94.12 yen from 94.42.

The euro's rebound on the greenback was limited as analysts said the Cyprus crisis was still not over and Italian politicians failed to produce a governing coalition amid more strains on the economy.

"The euro pared the sharp decline from earlier this week as capital controls in Cyprus helped the periphery country to avert a bank run," said David Song of DailyFX.

"But the weakening outlook for the region may continue to drag on the exchange rate as European policymakers maintain a reactionary approach in addressing the risks surrounding the region."

Analysts at Nomura said they still foresee a gradual weakening of the euro.

"Beyond Cyprus, the medium-term picture for the euro remains negative," they said in a research note.

"The divergence between key macroeconomic and financial market trends in the eurozone and the US will likely be an increasing important driver of the euro."

Song said the next key guidepost will be next week's meeting of the European Central Bank policy board.

The ECB "may show a greater willingness to ease monetary policy further as European policymakers struggle to address the ongoing turmoil in the periphery countries," he said.

The British pound gained to $US1.5192 from $US1.5128. The US dollar fell to 0.9494 Swiss francs from 0.9540 francs.

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Euro rebounds on hopes of Cyprus deal

THE euro pulled up against the US dollar on Friday amid expectations that an EU-IMF rescue deal for Cyprus would be formulated this weekend to avoid a meltdown of the country's banks next week.

The euro picked up nearly one cent from Thursday's rout to trade, at 0800 AEDT on Saturday at $1.2986.

The euro added slightly on the yen, to 122.72 yen from 122.34 yen, while the dollar was lower on the Japanese currency, at 94.46 yen from 94.86 yen.

After three days pushing further into crisis, with its banking sector and economy at risk of implosion if it could not seal a rescue deal, Cyprus appeared late on Friday headed back into the rough embrace of the European Union and International Monetary Fund for a bailout.

That gave traders more confidence that the Mediterranean island nation would not be forced from the eurozone and, more importantly, its deep problems would not spill over the borders into other troubled eurozone countries like Italy and Spain.

"People are fairly confident that some deal will be closed by Sunday evening," said David Gilmore, an analyst at FXA Analytics.

"A deal would involve a massive restructuring of the banking system."

David Song of DailyFX predicted that "as the EU moves into top gear to rescue Cyprus, positive headlines may prop up the single currency going into the end of the week.

"But we may see a major gap at the Sunday open should the periphery country fail to address the banking crisis."

The British pound gained more ground on the dollar, pushing to $1.5233 from $1.5171, and the dollar slipped to 0.9401 Swiss francs from 0.9465 francs.

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