(Reuters) – The euro fell to a four-month low against the dollar and German government bonds climbed to their highest in three weeks on Wednesday, as the implications of the Cyprus bank bailout deal weighed on sentiment.
Cyprus is expected to complete capital control measures on Wednesday to prevent a run on banks by depositors after the country agreed a bailout deal that will wipe out some senior bank bondholders and impose losses on large depositors.
The worry among investors and economists is that despite attempts by euro zone officials to quash the idea, the plan could become a blueprint for any future bailout in the troubled currency bloc.
As trading gathered pace in Europe the concerns pulled the euro to a four-month low of $1.28175.
German government Bund futures, an asset that investors value in times of increased tension, rose 15 ticks to their highest since March 7.
“Ongoing uncertainty about Cyprus is keeping interest in German government bonds high,” analysts at Helaba Landesbank Hessen-Thueringen said in a note.
U.S. data published on Tuesday, which signaled the world’s largest economy remains in recovery mode, helped offset the euro zone jitters to lift European stock markets.
Separate reports showed that demand for durable U.S. manufactured goods surged in February, while U.S. single-family home prices started the year with the biggest annual increase since June 2006.
Asian shares had also seen modest gains, leaving MSCI’s index of world shares, which tracks 6000 stocks in 45 countries, up 0.1 percent on the day.
“The current situation with the macro environment remains strong … Notwithstanding any other macro risks that may become apparent due to fears of (euro zone debt) contagion … we see the uptrend in the market to continue,” said Atif Latif, director of trading at Guardian Stockbrokers.
(Addition reporting by Tricia Wright; Editing by Will Waterman; ?)