Cyprus and their international lenders have reached a rescue deal to resolve the country’s financial crisis. News of the agreement during the early morning hours of Asian trading saw the EUR jump to a high of just below the 1.3050 level.
The proposed deal includes a levy on uninsured deposits over EUR 100,000 that are kept in the Popular Bank of Cyprus, known as Laiki Bank. This is the country’s second largest bank, and it will be eventually closed. The deal is expected to add EUR 4.2 billion to the Cyprus rescue package. Deposits that are below EUR 100,000 that are being held in Laiki bank will be protected and moved to the Bank of Cyprus, which is Cyprus’s largest bank.
The agreement to obtain a EUR 10 billion bailout package from the international lenders known as the Troika, (the EU, the ECB and IMF), came just hours before the deadline that had been imposed by the ECB, that could have seen the collapse of the Cypriot banking system.
According to Cyprus’s finance minister Michael Sarris, the country was hoping to open their banks as soon as possible, but he was not sure if banks would re-open on Tuesday as originally scheduled. These banks have been closed since last week and the Cyprus central bank had imposed a EUR 100 limit on ATM withdrawals to prevent a run on banks.
The agreement is not going to be welcomed by wealthy Russians holding deposits in Cyprus banks. Many of the uninsured deposits are suspected to be held by Russian citizens who no doubt will be disappointed by this decision. According to reports, 20% of total deposits in the Cypriot banking system are held by Russian citizens.
There is still a lot of information that needs to be gone through and the initial euphoria on the agreement as far as the EUR is concerned has come and gone. After hitting that high of 1.3047 early, the EUR has fallen once again back below the 1.3000 area, currently trading around 1.2990.
As the European markets and later this morning, the North American markets digest this news, we will see where traders take the market.
Further reading: Cyprus Deal Announced – Full of Uncertainties – EUR/USD UnconvincedGet the 5 most predictable currency pairs